Not all of the country suffered, however. The Northeast and West saw declines in sales of 15.8% and 12.7%, respectively, while sales were up 3.4% and 9.5% in the South and Midwest, respectively. But despite the pockets of improvement, the overall drop in June brings annualized home sales closer to record lows after declining 0.6% in May. Sales peaked at 1,389,000 homes in July 2005 and declined 77.5% through June 2011.
Meanwhile, the inventory of new homes for sale (164,000 units) in June declined to the lowest level since 1963. When new home sales are slow and inventory is depressed, it creates less competition and price strain on existing homes. However, an imbalance exists between supply and demand in the housing market; the lack of demand and high supply of existing homes (including shadow inventory) continue to hurt both the new and existing housing markets. This week's weak new home sales and last week's disappointing existing home sales data highlight the continued weakness in the overall U.S. housing sector.
The median price of new houses sold in June was $235,200, while the median price of existing homes sold during the same month was $184,300. As a result, median prices on new homes were 28% higher than prices on existing homes in June, which is higher premium than the historical level of roughly 15%. Therefore, when making a choice based on price, buyers are likely to prefer existing or even distressed homes over new ones. We expect this high premium to continue to sway consumer demand to existing homes and somewhat damper new home sales. We see this as a positive for existing home sales and prices to an extent. Overall, however, we believe it will take years for the new home market to regain a strong footing.
The home sales activities provide insights on the direction and movement of U.S. home prices as key economic trends. In general, new home sales data tend to lead existing home sales. This is because new home sales are counted in the report when the buyer signs the initial home sales contract (similar to the pending sale of existing homes) versus existing home sales, which are counted when buyers complete the purchase. Despite a modest decline in new home sales this month, we believe low levels of new home sales and a record low new home inventory may somewhat aid in the slow recovery of the existing housing market.
Key Highlights From The June New Home Sales
- New home sales declined 1.0% in June following a 0.6% decline in May (revised from 2.1%).
- New home sales peaked in July 2005 and declined about 77.5% through June 2011. However, new home sales are currently 1.6% above where they were in June of 2010. While last year's sales were generally boosted by the tax rebate, new home sales started to decline in May 2010.
- The Northeast and West regions posted decreases in sales for the second straight month, while sales were up in the Midwest and South. All regions except the Northeast posted increases on a year-over-year basis.
- Sales in the Northeast dropped 15.8% in June, and were 51.5% below a year ago; sales in the Midwest increased 9.5% in June and increased 2.2% year-over-year; sales in the South increased 3.4% and were up 4.6% year-over-year, and sales in the West declined 12.7% but were 23.2% above a year ago. Overall, the South accounts for about 58% (181,000 homes) of U.S. new home sales (312,000 homes).
- The national median new home sale price was $235,200, up 5.8% from May and up 7.2% from June of 2010.
- The estimated inventory of new homes in June was a record low 164,000 new homes, which is down 1.8% from May and down 22.3% from a year ago, while the months' supply declined to 6.3 months in June from 6.4 one month earlier at the current sale pace.
New Home Sales
On or about the 25th of each month, the U.S. Census Bureau reports the sales and prices of new single-family houses for the nation and the four regions. New residential sales data for July 2011 will be released on Tuesday, August 23, 2011, at 10:00 a.m. EDT.
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