Sales of new single-family homes declined 0.6 percent in June, the U.S. Census announced today. New-home sales, on a seasonally-adjusted basis, were recorded at 530,000 units for June, a marginal decrease from May.
But it is nearly impossible to get a true read on June’s sales numbers as May’s new-home sales data were revised up to 533,000 units from the originally reported 512,000 homes. (It is customary for the Census to revise the previous month's numbers each month.) What can be gleaned from today's data is that this housing downturn is certainly not over, according to Ernst & Young national director of housing Steven Friedman. “The mortgage market is difficult at best," Friedman said. "Consumer confidence is terrible. The employment picture is not sanguine."
And there is the ever-increasing threat of distressed properties. “Foreclosures are going to continue to be brisk, through at least the end of the third quarter, and that creates, in some markets and some price points, some very substantial competition for new-home sales,” Friedman said.
What that means is new-home sales are likely going to continue to flounder through 2008, according to analysts. Both competition from foreclosure sales and the lack of builder liquidity are pushing builders to build less, which means fewer new-home sales, according to Ivy Zelman, CEO of research firm Zelman & Associates in Cleveland, Ohio. “We have a lot more downside for new-home sales,” Zelman told BUILDER in an email. “We believe new-home sales will trough at 460,000, and I think we may not be bearish enough.”
As the rate of new-home sales continue to decrease, the inventory of new-unsold homes remains elevated, with the Census reporting a 10-month supply. That's down slightly from a 10.4-month supply in May. But Census data neither includes homes that builders are trying to sell after buyers canceled their contracts nor does it include those homes that are nearly brand-new and are being sold by investors.
Zelman said it will be years before the inventory overhang is absorbed into the market.
Friedman agreed. “If you sort of view it as a treadmill, we’re running fast on the treadmill, but the trainer’s about to bump up the speed,” he said.
The lower end of the home buying market continues to be weak with tighter credit for mortgages, the evaporation of down-payment assistance programs, and pressure of inflation. On the high end, buyers are deal-hunting, and many of the builders that making sales are gouging their prices to do so, Friedman said. “From an economic standpoint, whether that’s the best decision for a home builder is a different question, but it does create some sense of urgency that doesn’t otherwise exist,” he said of the price-cutting.
While some mainstream media outlets promoted the Census’ new-home sales report as a “Glimmer of Hope”, the struggling economy means it could be 12 months to 18 months, or even longer, before the housing market sees sustained increases in activity, Zelman said.
“I would love to be able to point to a statistic that I see on the horizon that would indicate a dramatic upturn, but I don’t see it,” Friedman said.
Ethan Butterfield is senior editor, business, at BUILDER magazine.
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Learn more about markets featured in this article: Cleveland, OH.