The new-home market scraped itself off the floor after May’s all-time low to post a 23.6% sales jump in June, reaching a seasonally adjusted pace of 330,000 units, according to data released Monday by the U.S. Census Bureau. The performance surprised economists and industry watchers, who had expected much weaker numbers; research firm IHS Global Insight, for example, had projected a 309,000-unit pace.
As welcome as June’s improvement was to builders, though, sales velocity remains extremely slow. Compared to the same month last year, June’s sales pace stands 16.7% lower, raising concerns among analysts about the ongoing financial challenges of home building firms.
“Barring a hard and fast economic recovery, we believe sales volumes remain insufficiently healthy for most builders to reconstruct sustainable operating margin and overall profitability,” said Carl Reichardt, a senior equity research analyst for Wells Fargo Securities in San Francisco.
“Normally, a 24% increase in sales would be reason to pop open the champagne. June's numbers, though, the second lowest ever, were abysmal,” noted Patrick Newport, U.S. economist with IHS Global Insight in Lexington, Mass. “A six-month moving average, which irons out volatility as well as spikes related to the tax credit, indicates that the new home sales been flat since hitting bottom in early 2009.”
Pricing also softened in June, with the median sales price for a new home slipping slightly to $213,400. For comparison, the median price of an existing home in June was $183,700, according to data released last week by the National Association of Realtors. Foreclosures and distressed sales continue to exert downward pressure on new- and existing-home sales; the NAR estimates that such transactions represented 32% of existing-home sales in June.
However, Newport did highlight some hopeful news in Monday’s data. “Two figures in the release … point to improvements up ahead,” he said. “First, the number of new homes for sale slipped to their lowest level since September 1968. At some point, probably soon—since we expect job growth to stimulate housing demand—builders will need to restock by ramping up on starts, or they will lose sales. Second, the turnover rate—i.e., the median time for sale-- dropped by 1.7 months to 12.4 months,” which Newport said was the best performance in 12 months.
The number of new homes for sale in June declined slightly to 210,000, which translates into a 7.6-month supply at the current sales pace.
Alison Rice is senior editor, online, at BUILDER magazine.
Learn more about markets featured in this article: San Francisco, CA.