One day after news that the rate of decline in existing home sales in June was double what analysts had expected, and as battered public builders continue to report plummeting sales and heavy losses, the Commerce Department estimated this morning that the sale of new homes was off by 22.3 percent in June to a seasonally adjusted annual rate of 834,000 units, compared to the same month a year ago. New home sales were also down by 6.6 percent from May.
Based on the persistent weaknesses in new and existing home sales and the fact that building permits in June fell to their lowest levels in a decade, David Seiders, NAHB's chief economist, lowered his construction projections. He now believes 2007 starts will be down 23 percent compared to 2006. Seiders isn't alone in his pessimism, either - the NAHB/Wells Fargo index of builder confidence fell in July to its lowest level in 16 years.
"The housing downturn is in full swing, and will remain in place for another year," says Mark Zandi, chief economist with Moody's Economy.com, during an interview with MarketWatch.com. Zandi does not believe that the housing market will normalize until 2010, although he does see pockets of strength in Texas, the Pacific Northwest, and the Carolinas. Commerce reported that new home sales in the South jumped 7.6 percent in June over the previous month, but fell in the country's other three regions, by 27.1 percent in the Northeast, 22.5 percent in the West, and 17.1 percent in the Midwest.
What builders and developers are justifiably worried about is that current market conditions could get much worse before they improve, as the subprime mortgage meltdown starts to bleed into the prime market, with even creditworthy borrowers having trouble making their loan payments. What builders don't need right now is more houses going back onto the market via foreclosures. The inventory of unsold homes has stubbornly refused to recede; it hit 537,000 units in June, or the equivalent of 7.8 months' worth of supply. With lenders tightening loan requirements, making it tougher for homebuyers to get financing to purchase a house, builders find themselves in a Catch-22 situation that leaves them with few options.
Builders are already scaling back their construction, including Pulte Homes, which through the first half of this year lost $593.2 million. "Pulte continues to focus on reducing its land and speculative home portfolio, and properly adjusting overhead spending to put us in the best position to navigate through this continued severe downturn," said the builder's CEO Richard Dugas, in a prepared statement. His company and other builders also continue to cut prices to move product. The median price of a new home fell 2.2 percent in June, to $237,900, compared to the same month in 2006, according to Commerce's estimates.