New home sales, expected to dip slightly in August, did just that, as the beleaguered housing sector continued to show no inclination to throw off the yoke of a half-decade of unrelenting downward pressure. In all, sales of new residences fell by 3.2% last month, to an annualized rate of 2.95 million units. Such transactions had been expected to come in just at that mark, although some economic forecasting groups had estimated a rare increase in such sales.
Meanwhile, the prior month's sales total was upwardly revised from an initial July estimate of 2.98 million annual units sold to a slightly better total of 3.02 million homes. Anyway one slices it, however, such sales remain at just about a quarter of the euphoric levels of a half decade ago when such activity was routinely in the area of 1.1 million to 1.3 million homes. Those days, though, are long gone and unlikely to return for years, if ever, so burned are home owners.
In all, this was the fourth straight month in which new home sales had shown a decline. However, in contrast to a year ago, when the earlier expiration of the home buyer tax credit had temporarily lowered such sales to levels that were even further below trend, new home sales showed an actual year-to-year gain, albeit a modest 6.1% in August. Even so, sales are far below what would be considered a healthy level, which is generally considered to be in the range of 750,000 homes per year.
Several things continue to weigh on the housing sector, starting with the nation's high jobless rate, which currently stands just above 9%, and also including the slow pace of job creation, the unacceptably low level of personal income growth, and the downward pressure on home prices. Why buy a home now, the reasoning logically goes, when that same domicile might cost less six months from now. Until that psychology changes, we likely will remain in a housing depression.
Underscoring this weakness in home prices is the fact that the median cost of a new home was $209,100 in August. That was 7.7% below the level of a year before. The one positive trend in all this is that the number of new homes for sale continues to decline, as builders are reluctant to construct new residences aggressively. At present, there were just 162,000 homes for sale nationally, which equates to a 6.6-month supply, which is at the low end of the recent inventory range. Until that level eases further, however, the level of pent-up demand, which is undoubtedly on the rise, will not translate into a large increase in construction of new homes.
All told, new home sales fell in three of the nation's four regions, declining by 13.6% in the Northeast, by 6.3% in the West, and by 2.4% in the South. However, they were up by 8.2% in the Midwest. Unfortunately, the Midwest is the second smallest region of the four, with just the Northeast being smaller. The South is by far the largest region of the country, accounting for fully 56% of last month's overall sales activity.
On balance, this was another in a series of underwhelming housing reports.
At the time of this article's writing, the author did not have positions in any companies mentioned.