Monday, July 26, 2010

New Home Sales Jump 23.6% – Sales Remain Volatile

New home sales shot up 23.6% in June to an annualized pace of 330,000 units. This follows a downwardly revised sales pace of 270,000 units in May (previously 300,000). Sales have been very volatile in recent months primarily due to the effects of the homebuyer tax credit which expired in April. Sales rose sharply in March and April as buyers rushed to take advantage of the credit. Following this rush, sales fell back down in May eventually beginning to recover in June.

The cumulative rise of sales off of the prior trend in March and April was about the same magnitude as the decline in sales in May and June. This suggests that the vast majority of sales that were driven by the tax credit where not newly induced buyers. Instead, it is likely that many buyers who would have purchased a home in later months simply moved their purchase forward by a couple months to take advantage of the credit.

The median sales price has likewise been volatile in recent months. Prices fell 14.5% in April as homebuilders likely discounted prices in order to clear inventory before the credit ended. In May, prices jumped back 11.6%. Prices fell 1.9% in June to $214,500. It is likely that homebuilders discounted their prices in April in order to move inventories while the credit still existed. The median sales price was down 3.0% from a year earlier.

With the increase drop in sales, the months supply of inventory of homes for sale declined to 7.6 from 9.6. 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.

10.07.26 (Source: Census Bureau)

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