Wednesday, August 24, 2005
New home sales numbers a mixed bag of tricks
Courtesy of The Dallas Morning News:
Flouting expectations, new home sales spiked 6.5 percent in July to a record 1.41-million-unit rate.
Economists had been expecting a decline to a 1.33-million unit rate from June’s previous record of 1.37 million units.
“The momentum in the most recent month was clearly very strong and there is no reason to expect much let up until we see some rationalization in interest rates,” David Greenlaw, senior fixed income economist at Morgan Stanley, commented in a note to clients.
Unlike existing home sales, new home sales are counted when a contract is signed. For that reason, economists treat this data as very “real time.”
Over the past year, new home sales have risen a remarkable 28 percent.
The strength has been most notable in the red-hot West, where sales rose 36 percent, to a record 495,000 units -- twice the 10-year average of 251,000 units. For the month, the West carried the country, as sales in the Northeast rose modestly, by 10 percent, and declined in the South, by 3.5 percent, and the Midwest, by 13.5 percent.
Reading the first couple of paragraphs of the article, the news looks great as one of the chief measurements of the strength of our economy is in new home starts and new home sales. It's another great sign that our economy is growing. However, the positive tone of the article didn't last, as I found out when I read this more ominous section:
Though the record sales helped push months’ supply down to 4.0 months, the actual inventory numbers raised concerns that supply could easily bury demand if sales were to stop reaching new records every month.
“With monthly sales running at a pace that seems to us to be way above a longer-term sustainable level,” Mr. Greenlaw added, “the value of this gauge as a true measure of inventories is limited in our view since it is holding at such low levels as a result of the extraordinary level of sales, not a low number of homes for sale.”
Aside from the inventory number, some were troubled to see the decline in new home prices despite the strength in sales. Median home prices slipped 7 percent in July to $203, 800 from $219,500. For the year, median prices are down 4 percent.
More puzzling yet was that home prices exhibited strength in high-priced areas and weakness in low-priced areas, fanning the flames that speculation is rampant in certain sections of the country.
Average home prices rose to $275,000 in July from a revised $272,200 in June, providing a better reflection of continued price strength in certain markets.
The median family living in the West now earns only 81 percent of the amount needed to pay the mortgage on an average home, Mr. Greenlaw figured.
His conclusion was that, “builders may be forced to build cheaper new homes that more people can actually afford.”
This isn't the first time I've heard the dreaded bubble talk in the housing market. I hope that the builders keep in tune witht the market and adjust as necessary to keep this robust portion of the economy rolling.
I myself would like to see more of the lower priced affordable units built, as that allows more Americans a real opportunity to purchase a home and afford the mortgage over the long-term, without financing gimmicks and tricks.
The best means to economic empowerment in this nation is owning a home. We have to make this possible for as large a segment of the population as possible. People are much more involved in their community if they have an ownership stake, meaning they are much less tolerant of the criminal element. This could mean a further clearing out of the urban areas, until we find manageable ways to clean up our cities and make it a safe place to buy a home again. I don't really care where our people buy their houses, as long as it helps them attain their version of the "American Dream."
We have to be on the lookout to make sure this isn't a bubble situation, and that the market will shift to find new buyers no matter what their income level. Even though there were some warnings, I found the article warming and encouraging...another sign that this is the best nation on the planet to be living in, no question.
Flouting expectations, new home sales spiked 6.5 percent in July to a record 1.41-million-unit rate.
Economists had been expecting a decline to a 1.33-million unit rate from June’s previous record of 1.37 million units.
“The momentum in the most recent month was clearly very strong and there is no reason to expect much let up until we see some rationalization in interest rates,” David Greenlaw, senior fixed income economist at Morgan Stanley, commented in a note to clients.
Unlike existing home sales, new home sales are counted when a contract is signed. For that reason, economists treat this data as very “real time.”
Over the past year, new home sales have risen a remarkable 28 percent.
The strength has been most notable in the red-hot West, where sales rose 36 percent, to a record 495,000 units -- twice the 10-year average of 251,000 units. For the month, the West carried the country, as sales in the Northeast rose modestly, by 10 percent, and declined in the South, by 3.5 percent, and the Midwest, by 13.5 percent.
Reading the first couple of paragraphs of the article, the news looks great as one of the chief measurements of the strength of our economy is in new home starts and new home sales. It's another great sign that our economy is growing. However, the positive tone of the article didn't last, as I found out when I read this more ominous section:
Though the record sales helped push months’ supply down to 4.0 months, the actual inventory numbers raised concerns that supply could easily bury demand if sales were to stop reaching new records every month.
“With monthly sales running at a pace that seems to us to be way above a longer-term sustainable level,” Mr. Greenlaw added, “the value of this gauge as a true measure of inventories is limited in our view since it is holding at such low levels as a result of the extraordinary level of sales, not a low number of homes for sale.”
Aside from the inventory number, some were troubled to see the decline in new home prices despite the strength in sales. Median home prices slipped 7 percent in July to $203, 800 from $219,500. For the year, median prices are down 4 percent.
More puzzling yet was that home prices exhibited strength in high-priced areas and weakness in low-priced areas, fanning the flames that speculation is rampant in certain sections of the country.
Average home prices rose to $275,000 in July from a revised $272,200 in June, providing a better reflection of continued price strength in certain markets.
The median family living in the West now earns only 81 percent of the amount needed to pay the mortgage on an average home, Mr. Greenlaw figured.
His conclusion was that, “builders may be forced to build cheaper new homes that more people can actually afford.”
This isn't the first time I've heard the dreaded bubble talk in the housing market. I hope that the builders keep in tune witht the market and adjust as necessary to keep this robust portion of the economy rolling.
I myself would like to see more of the lower priced affordable units built, as that allows more Americans a real opportunity to purchase a home and afford the mortgage over the long-term, without financing gimmicks and tricks.
The best means to economic empowerment in this nation is owning a home. We have to make this possible for as large a segment of the population as possible. People are much more involved in their community if they have an ownership stake, meaning they are much less tolerant of the criminal element. This could mean a further clearing out of the urban areas, until we find manageable ways to clean up our cities and make it a safe place to buy a home again. I don't really care where our people buy their houses, as long as it helps them attain their version of the "American Dream."
We have to be on the lookout to make sure this isn't a bubble situation, and that the market will shift to find new buyers no matter what their income level. Even though there were some warnings, I found the article warming and encouraging...another sign that this is the best nation on the planet to be living in, no question.
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