Market CommentariesNew Home Sales Weaken In July

Data issued within the past hour showed, in somewhat surprising fashion, that sales of new homes had faltered in July, coming in at an annualized rate of 412,000 properties sold. Expectations had been for an increase to 430,000 homes. June's total of new homes sold, meanwhile, was revised from an earlier estimated 406,000 to 422,000. May's total of homes sold also was revised upwards, as well, going from 442,000 to 454,000 residences.  

This pullback in such sales was on a consecutive-month basis, as the year-to-year change was positive, with just 367,000 homes having been sold on an annual basis in July of 2013. 

Looking at 2014 to date, this latest month's tally was the smallest since an estimated 403,000 transactions took place in March. In the meantime, every month since October has seen more than 400,000 sales on an annualized basis. Transactions had slumped badly in the third quarter of last year. In all, given the subsequent comeback enjoyed late last year, this sector will need to see some rather quick firming up over the next few months in order to avoid some year-to-year slippage.

Breaking the report down, we find that much of the aggregate 2.4% decline in July reflected double-digit setbacks in the Northeast and the West. However, the South, the nation's largest individual region, firmed up last month, gaining a solid 8.1%. It should be noted that the South accounted for 61.4% of the new homes sold last month. This was the highest number of homes sold in that region since this past February.

Also, the median price of a new home sold across the nation last month eased by more than 3%, to $269,800. In June, the median had been $280,100. However, the mean, or average price, of a new home increased last month, rising from June's $332,100 tally to $339,100.

As to actual houses on the market, the seasonally adjusted estimate of new homes for sale at the end of July was 205,000. That represented a six-month supply at the present sales pace. It was the highest level of available inventory since August of 2010. Still, that is considered to be just an average level of inventory. In May and June, the monthly supplies were, respectively, 5.1 and 5.8.  

Finally, the weak new home sales data are at odds with other figures, which have suggested that the housing market is now on the mend following a spring pause. To wit, housing starts and building permits both rose last month, while sales of existing homes have hit a 10-month high. It should be noted, that this is a small and volatile housing category, being much less stable that the re-sales market, which also is about ten times as large.

Taken as a whole, this was a disappointing report, but one that is not all that worrisome given the small aggregate market and its volatility. Had this report been matched on the construction and resale fronts, the news would have been much more worrisome for the economy.