A Bottom May Be Forming in Home Sales

The Commerce Department filed its monthly report(.pdf) on new home sales a short time ago and, like existing home sales, that clunking sound you hear just might be a bottom now forming in home sales (not to be confused with home prices).That makes four months now of about flat new home sales and, like the ten month stretch of relatively flat existing home sales, it's possible that sales volume has gone about as low as it's going to go.

Of course, that doesn't mean sales are likely to go any higher anytime soon and, with foreclosures setting new records every month, home prices are sure to go lower, perhaps much lower.

The sale of new homes fell less than expected last month, from an upwardly revised 533,000 in May to 530,000 in June, and inventory dropped from 10.4 months of supply to 10.0 months. While this level of inventory remains historically high - more than double the long-term average - it is an improvement over recent months.

The median sales price fell to $230,900, down 2.0 percent from the June 2007 level, however, builders continue to offer many incentives and other give-aways that make the reported changes to new home prices almost meaningless.

The leveling off of home sales, if it continues, will surely provide some welcome relief for both home builders and real estate professionals.

If, on the other hand, you are a home seller, relief may take some time.

Comments

[niveK:]

Questions:
Do you think the rise in sales might have something to do with the purchasing of foreclosures properties?
Do you think it might be a long time (years) before we see a leveling off of housing prices? Does supply and demand have anything to do with this?

2008 Jul 27 07:55 AM

[FreddieBoy:]

Until the inventory of new/existing homes declines significantly ( currently 11 months down to 5) the housing market is in the tank. Why are builders still building and adding to supply? 2-4 more YEARS is my guess before we have a "normal" housing market again.

2008 Jul 27 08:02 AM

[Rhett:]

Builders are still building because they will fall if they stop.

2008 Jul 27 10:48 AM

[jackooo:]

Tim..
Your article title is MAY. Is it possible it MAY NOT?
You reporters make me laugh. You know as little as me. MAY BE!

2008 Jul 27 10:49 AM

[Gary A:]

Well after the National Australia Bank has written down AAA rated CDO's to TEN CENTS on the dollar I wonder who would ever want to invest in a mortgage bond ever again. Don't tell me this crisis is over. It is just starting. It is even possible that the 20 year mortgage could go away. Then what will your housing bottom look like.

2008 Jul 27 11:22 AM

[Gary A:]

Sorry, I meant 30 year mortgage. Maybe we will go back to the 5 year mortgage and a balloon payment like before Fannie and Freddie.

2008 Jul 27 11:24 AM

[Tom Lindmark:]

Predicting anything based on sales during the prime home buying season is pretty risky. Maybe we should wait and see how the year shakes out.

2008 Jul 27 12:29 PM

[Tim Plaehn:]

New home sales are adjusted for seasonality, so the season does not matter. Homebuilders are building/selling just enough to stay alive. A bad market does not mean zero sales, just low sales.

Existing home sales have been on the rise for 3 straight months in California. (see my blog for some details) 50%-60% of the purchases are REO and slowly whittling down the inventory of bank owned homes.

Foreclosure rates are a trailing indicator, since the average mortgage goes 5-6 months without payment before it is taken by the bank. Current foreclosures are from early this year. We will not see a change until well after it happens.

Finally, check out the tax incentives for the new housing bill. Many will be looking to buy!

2008 Jul 27 01:43 PM

[Tom Lindmark:]

Tim,

Never forget that seasonal adjustments are estimates.

One other point that I should have mentioned. The author cites new home sales to make his point about a possible bottom. This statistic may be one of the worst published by the government. New home sales are really a measure of contracts signed to purchase a new home not the closing of an escrow on a new home. The number is subject to wild swings as buyers can and do cancel the contracts prior to completion of the home.

2008 Jul 27 02:54 PM

[Urbane Gori...:]

Just ran "Jeff Mackies" big purple crayon across both lens on teh above chart.. Don't see anything compelling.

And from a personal perspective here in California, weekly home sales in the local Sacramento Bee have dropped from 1 1/2 pages to about 1/3 of a page in the last year. Whereas before, my zipcode encompassed 2 full columns of sales, today there was 3 listings.

San Francisco Chronicle, which has been happily reporting 'continued growth in the SF resale market.' had to change the story this last week. And this during the normal yearly sales peak. (Summer, just before school starts).

Lets talk about the lack of available loans, businesses reducing staff and the two banks that were just shuttered by the Feds this weekend. (That makes 3!!!)....

And, Florida and Nevada are no better yet either. Matter of fact, according to the stats I just heard on CNN last night, the West Coast is not suffering the 'growth of foreclosures' to the same degree as the other 4 quadrants of the US...

I dunno! Just doesn't have that ol' 'rebound feeling'....

jegan ;-)

2008 Jul 27 03:59 PM

[cyclops:]

Do you fools (reporters) think you will get some award for calling the bottom first. Why not study the subject before promoting this manure. Besides, you ain't near pretty enough to compete with the CNN cheerleaders.

2008 Jul 27 04:12 PM

[kurt walter:]

Everyday I hear "is this the bottom". Jeez, we aren't close to the bottom. Pay option ARM and other exotic ARM loans will continue to adjust in 2009, 2010, 2011.

2008 Jul 27 04:35 PM