Wednesday, June 23, 2010

New Home Sales Fall 32.7% as Tax Credit Expires; Prices Up 5.2%

After rising greatly for two months, new home sales plunged in May, falling 32.7% over the month to a seasonally adjusted annualized pace of 300,000 units. The main driver of this volatility over the past few months was the homebuyer tax credit. Sales grew at a brisk pace in March and April, but after the credit expired at the end of April, sales fell back greatly. May’s sales pace set a new cyclical low and was 18.3% below the sales pace in May of last year. Based on the most recent indications of mortgage applications, it is likely that the June sales number will also prove to be quite weak.

After falling 16.0% in April, the median sales price rose by 5.2%. It is likely that homebuilders discounted their prices in April in order to move inventories while the credit still existed. The rise in price in May reflects the winding down of that effort. Still, prices are lower than they were prior to the credit. The median sales price was $203,100, down 9.7% from a year earlier.

With the large drop in sales, the months supply of inventory of homes for sale jumped to 8.5 from 5.8. The historical norm is about 4.5 to 5 months. Before it can be certain the prices have stabilized, this ratio will likely have to find its way back to this area.

10.06.23 (Source: Census Bureau)

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