Sales of new single-family houses in July fell 12.4% to 276,600, the slowest pace of sales since the government began keeping track in 1963. July durable goods orders rose slightly, but the increase came mainly from airplane orders.
The plunge in home sales was well below the revised June rate of 315,000 and is 32.4% below the July 2009 figure of 408,000, the U.S. Commerce Department reported Wednesday, August 25. The median sales price of new houses sold in July was $204,000. New houses for sale at the end of July were estimated at 210,000, representing a supply of 9.1 months at the current sales rate versus 8.0 months in June.
Demand for durable goods rose 0.3% in July, according to the Commerce Department’s latest report. But that increase looked less impressive excluding the volatile transportation component, which contributed a 75.9% increase in commercial airplane orders to the overall number.
Economists had anticipated a 3% increase in durable goods orders and no change to home sales from June. Tuesday’s report for existing home sales in July from the National Association of Realtors also posted a record low.
“The housing and durable goods orders together are not telling us the economy is in great shape,” said Joel Naroff, president and chief economist of Naroff Economic Advisors, Holland, Pennsylvania, in a phone interview. “Clearly, there are issues we need to overcome. It’s taking a long time to fix a collapsed housing and financial sector. That could take as long as five years. You’re not going to get instant gratification out of this recession. It was too damaging.”
Steve Blitz, senior economist with New York-based Majestic Research, said in an analyst note that there is nothing in the data that suggested home sales were going to be up in July, and there is nothing that he can see in the August data to suggest stronger new home sales coming in August.
“On the upside, for home builders, inventory keeps shrinking on a national level,” Blitz wrote. “The problem for housing is that this is the central point for deflation in the U.S. economy and we are seeing deflation behavior in consumer attitudes towards home ownership. Extraordinarily low nominal mortgage rates do not necessarily translate to expectations for positive real returns from leveraging into a house. This is the flip side of the inflation mindset that has been effectively driving the demand for homes since the 1970s.”
With new home sales at a record low, “it might be easier to list the names of the buyers than the numbers of homes sold,” Naroff quipped.
Naroff also noted in a written comment that people who want to move but have lost too much equity are stuck because they cannot afford a down payment. “The mortgage market remains broken, and declining or even flat prices will not cause potential buyers to flock back into the market. And with credit standards back to where they should be, many of them will not qualify anyway.”
As for the durable goods data, both Naroff and Blitz said that it is a very volatile series and thus not a good indicator of overall economic trends.
“Looking through the filter of moving averages it is hard to come away with any conclusion other than that the pace of acceleration in the manufacturing sector has slowed,” Blitz said. “The manufacturing economy was never going to push along on its own with strong growth while consumption flattened and housing faltered once inventory restocking was complete. And that is where the economy is today.”
Read about new home sales in June from the archives of InvestmentAdvisor.com.