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New Home Sales Not Inspiring

Written by Lance Roberts | Jan, 24, 2013


New home sales did uptick this month to 323,000 homes – this is a far cry from where new home sales should be in a more healthy economic environment.  According to today’s release:  ” New U.S. single-family home sales rose in April to notch their second straight month of gains.   Sales increased 7.3 percent to a seasonally adjusted 323,000 unit annual rate, the highest level since December, from a slightly upwardly revised 301,000-unit pace in March.”

Sounds good until you realize that compared to April of last year sales are down a whopping 23.1%. As you can also see in the attached chart we are still plumbing lows of the index that goes back to the 1960’s.  

The Decline Is Not Over

There is an oversupply of used houses and a relentless and huge backlog of foreclosures sitting on the books of banks that will continue to flood the overall market.   Once the “fraudclosure” issue is resolved in the coming months the dump of properties onto the market will drive prices lower and take away from new home sales as existing properties will be priced much cheaper to move quickly.  Further, any rise in interest rates will also detract from new home sales as individuals price homes in terms of their monthly payment and they will be able to buy more home with existing homes than new homes.  

The real problem here is that selling an existing home doesn’t do much to stimulate economic activity.  It is constructing new homes that has the greatest multiplier effect on the overall economy because of all of the jobs that are maintained and created during the building process. With new home inventories at record lows this does bode well for future economic growth but the supply overhang will have to be cleared first and that could be a couple of years away.

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