New home sales down, down, down

Posted by: Dean Foust on August 24, 2006

New home sales fell 21.6% in July from the same month last year. That’s the lowest level since February, and below the consensus estimate. Inventories of new homes for sale were up 22.4% from the same time last year, to 568,000 new homes, which is about a 6.5-month supply.

And as bad as those numbers are, they are likely to get worse in coming months, according to report issued today by Wachovia economist Phillip Neuhart. Here’s why…

In his report, Neuhart notes that only 24.4% of homes in the total inventory count are actually completed, which means the vast number of inventory is comprised of homes not yet started or under construction. Already, some builders like Toll Brothers have noted that buyers are willing to walk away from deposits if they see housing values in a downward spiral (who wants to pay $650,000 for a home they contracted for six months ago, if houses in the subdivision are now going for $605,000 in the resale market?)

Neuhart also notes that builders' sentiment, as measured by the National Association of Home Builders, fell again in August, "signaling that we have not seen the worst of it yet. Additionally, the market is probably worse than the numbers reflect because new home sales are booked at contract signing, meaning the high level of cancellations being reported by builders are not captured." As a result, Neuhart expects the housing market to continue its decline through 2006 and into all of 2007.

Reader Comments

Frank

August 26, 2006 6:16 PM

Gee Dean, did you read that your own publication said we don't really have to worry and that some other sector of the US economy will prop us all up? Golly, I feel so much better...
http://www.businessweek.com/magazine/content/06_36/b3999032.htm?chan=top+news_top+news+index_investing

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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