Credit Commentary

New home sales surge to highest rate in ten months

By Administrator on Thursday, August 27 2009

Sales of newly constructed homes leaped unexpectedly in July to hit their highest level since last September.  The new home sales jumped almost 10 percent from June, while orders for durable goods like appliances, planes and computers rose nearly 5 percent in July, the third increase in the past four months.

New homes sold at an annualized rate of 433,000 during the month, according to a joint report issued by the commerce department. That far exceeded analysts' forecasts and was up 9.6% from the revised 395,000 rate recorded in June, providing another sign the housing market is bouncing back from the historic bottom reached early this year.

The news followed other positive housing market reports earlier this month, including a spike in existing home sales, home prices and affordability. But certainly low mortgage rates, huge price reductions on the high inventory of new builds, and the first-time homebuyer tax credit have been instrumental in getting consumers to take the plunge into the real estate pool of opportunity.

However, home prices are still pretty depressed. The median price of a new home declined again last month to $210,100, down only slightly from June but off more than 11% from July 2008.  Sales of new single-family homes in the U.S. rose last month but still have much ground to reclaim to get back to 2008 levels.

But the sales spike did help reduce the inventory: Available new homes dropped to 271,000, the lowest total in 16 years, from 281,000 a month earlier. That's down to a healthier 7.5 month supply at the current rate of sales from 8.8 months in June.

Separately, the Commerce Department said orders for durable goods rose last month by the largest amount in two years, as the manufacturing sector rebounded from the depths of the recession.

Orders for goods expected to last at least three years increased 4.9 percent in July, the third rise in the past four months. Orders for June were revised to a 1.3 percent drop from a 2.2 percent decline.

Basically lower home prices is stimulating home sales. Federal government home programs, including the $8,000 income tax credit, are also supporting sales. That said, new home sales are still at a low level, and will not move the U.S. GDP needle that much, but the data provides more evidence that the housing market is bottoming.