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Posted by: Broker -  2009-07-30

New home sales: 'Really good news'

Sales of newly constructed single family homes rose 11% over May, but median price fell 3%.

NEW YORK (CNNMoney.com) -- Sales of newly constructed single-family homes spiked 11% in June to an annualized rate of 384,000 homes, according to a report released Monday.

The gain over May was much greater than expected. A consensus of housing industry analysts had forecast seasonally adjusted sales of 352,000, according to Breifing.com.

However, sales are still 21% below the levels of a year ago, when new homes sold in June at an annualized rate of 488,000, according to the report released by the U.S. Department of Housing and Urban Development. Four years ago, during the height of the housing boom, the sales rate for June was 1,374,000, nearly three-and-a-half times higher than last month.

Still, the report was very positive, according to Peter Morici, an economics professor at the University of Maryland who had forecast June sales to be at the 350,000 level. "That is really good news. Considering what's going on in existing home sales, with all the foreclosure activity sending down home prices, for new homes to jump like that is a good indicator that the economy is bottoming out."

Builders have been more optimistic about market conditions and this report should further buoy their spirits. An index of builder confidence from the National Association of Home Builders (NAHB) rose to 17 this month after languishing in single-digit territory.

In June, they began building single-family housing units at an annualized rate of 470,000, a 14.4% jump over May.

Pat Newport, a housing industry analyst for IHS Global Insight, also deemed the report very good news -- but is uncertain how President Obama's $8,000 tax credit for first-time homebuyers will affect the longer view.

"I only wonder how much of the increase is coming from rising demand from new homebuyers," he said. "The tax credit is boosting demand, but what will happen when it goes away in December?"

Prices and inventory

The median price paid for a house sold in June 2009 was down about 3% to $206,200; the mean price was $276,900.

By the end of the month, the inventory of new homes had dropped to 281,000, an 8.8 month supply at current rates of sale. Last month, there were enough homes on the market to last 10.2 months at that rate.

"They have to clean out that stock to get building again," said Morici.

"Normal" new home inventory is about 300,000, according to Newport, which we're already below. But ,he added, that the median time to sell a home is at an all-time high of 11.8 months.

"That tells you it's still very hard to sell a new home," he said.

Much of that struggle is because the housing stock is concentrated in exurbs -- otherwise known as McMansions far away from work. "Inventories are misaligned," said Morici, who likened the situation to the auto industry being overstocked with large trucks and SUVs instead of fuel efficient cars.

"There'll be a shift from far-out to closer-in and from bigger to smaller," he said. But builders will have a hard time selling those "white elephants" and they'll languish on the market, he predicted.

The excess inventory also tend to be concentrated in just a few markets, such as California, southern Florida, Las Vegas and Arizona, according to Bernard Markstein, a senior vice president and economist with the National Association of Home Builders.

"[In most other parts of the country] inventory has been worked down to the point where if you want to buy a new home, it will probably have to be built," he said.

Perhaps the best news is that home construction may be ready to once again boost the economy again. "The construction-put-in-place numbers that come out next month will show that housing is starting to add to the GDP," said Newport. "It's been nothing but a drag on growth lately."

With new home inventory more in balance, consumers may no longer be able to wring extras, such as high-end appliances and even swimming pools, out of builders. "People are going to find builders are not going to be quick to make concessions," Markstein said. "The time for getting deals is going away."

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