New Home Sales July 2010 to July 2011

Number of New Home Sales 12-Month Moving Average Declines 16.5 Percent From July 2010 to July 2011 — Current 299,000 Annual Average Versus 1 Million Normal

New home sales continue in the doldrums as July 2011 tallied 298,000 on a seasonally-adjusted annualized rate (SAAR) compared to July 2010’s 279,000 rate.  Recall, however, that June 2010 was the end of the $8,000 homebuyer tax credit, which both increased sales and cannibalized future sales.

A better way to look at trends is to average for the prior 12 months the SAAR sales rate.  The first graph below shows the monthly SAAR while the second shows the 12-month moving average level.  The moving average seems to indicate that at least the number of sales has stabilized—and that is an initial requirement for recovery in the housing market.  

New home prices appear to be trending up slightly, however.  The monthly median prices are shown in the first graph below, while the 12-month moving average is in the second graph.  The 12-month moving average of median prices rose 5 percent from $208,800 in July 2010 to $218,500 in July 2011.

Finally, in comparing existing and new home prices, the following graph shows the 12-month moving average of both new and existing median home prices.  Note that new home prices now have greatest premium over existing home prices since 2002.  Rather than concluding that new home prices are increasing, I believe it is merely the declining price levels of existing home prices due to foreclosures and short sales. 

The bottom line is that new home sales remain at less than a third what typically is normal.  Slight price increases in new homes indicates that builders have likely shed their own distressed inventories.   New home sales, however, will not return to the 1 million sales per year normal pace until the 4 million distressed existing homes that are more than 90 days in default are either short-sold, foreclosed on or receive loan modifications.   And until consumer confidence and job growth returns, we will continue in these doldrums. 

And right now, there is nothing on the horizon that would indicate any positive change in the economy.


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