Jon
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Joined: 13 Apr 2005
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| New home sales rise when expected to fall |
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May new home sales rose 4.6% when expected to decline, basically the opposite from the durable goods orders released Friday. Sales enjoyed their best gain since December and the South posting its best gains since October. As with that report, the details tell the story the headline does not.
First, home prices fell 2.6% in May over April. Year over year, however, prices still rose 2.4%. Nonetheless, 2005 was the peak in housing and though higher they were early in the year, prices have peaked and are off of their record highs. Homebuilder sentiment has fallen and with it building permits are falling as well.
You would think homebuilders were slowing their pace ahead of the drop off in the market, but that goes against history; builders typically build until sales drop to nothing. This time they are getting aggressive with sales along. In January 18% of homebuilders were cutting prices. In June that rose to 41%. They are using more realtors and more incentives.
Second, the number does not reflect cancellations that builders are reporting more recently. This is one of the pitfalls of counting sales at the contract versus the closing as is done with existing home sales. Until the market slows, however, the new homes recorded at the contract time give you fresher data.
It is true that home supplies are much higher than last year, and that alone is a sign the market is slowing. All of these indications add up to a slowing and not a crashing housing market, just as it has done since the peak in 2005. That is exactly what you want to see. The concern with housing as with any sector in the economy as well as the economy overall is that the Fed goes too far and engages in overkill that turns a nice slowdown into an ugly collapse. Thus far we are still very much in an orderly slowdown; we just hope the Fed does not take too much comfort in that as it ponders its further role in restricting the economy.
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