New Home Sales Lose Momentum in August

Posted by: Prashant Gopal on September 25, 2009

New home sales, after four months of robust gains, only inched up 0.7% in August, the Commerce Department reported Sept. 25.

The government’s monthly new home sales report, which has a wide margin of error, is relatively unreliable. But it follows disappointing results for existing home sales and housing starts.

Existing home sales dropped 2.7% in August on a seasonally-adjusted basis — the first decline in five months, the National Association of Realtors reported Sept. 24. And single-family home housing starts dropped 3% in August from the previous month when adjusted for seasonal variations.

Patrick Newport, and economist with IHS Global Insight, said it’s not clear why sales wouldn’t increase more, especially with the $8,000 federal tax credit for first-time buyers set to expire at the end of November. Buyers should be rushing to take advantage of the incentive before it vanishes (Some of them, of course, might be aware that Congress is mulling over the idea of extending and even expanding the credit to include all buyers).

“Three independent sources [new home sales, housing starts, and existing home sales reports] are telling us the market weakened in August,” said Patrick Newport, an economist with IHS Global Insight. “I’m just not sure what is happening.”

But Zach Pandl, an economist at Nomura Securities, isn’t concerned about monthly fluctuations. He expects the last-minute rush of buyers using the tax credit to boost sales in September.

The good news is that inventories of unsold new and existing homes continued to drop in August, Pandle said.

“Overall, I don’t think much has changed here,” said Pandl, who says the housing market is now strong enough to stabilize even without the $8,000 credit. “It’s unreasonable to expect a smooth upward march. It’s going to be a choppy, challenging recovery.”

Reader Comments

Mr Insight

September 25, 2009 5:45 PM

If you want to have new house constructed before November 30th (to get the $8000 credit)- You should have written a P&S before August. There is no way the builders can get the city permits and construct the house in 60-70 days, So the Housing permits and starts should have dropped. It wont be surpirsing to see the trend continue down south even with the 8000 dollars credit.

Dennis Norman

September 26, 2009 11:09 AM

New home sales as reported by the Commerce Department really leaves a large amount of room for error and in fact may not be portraying the new home market as it really is. For example, the reports are that new home sales are up in August from July 0.7 percent and down 3.4 percent from a year ago. These are "seasonally adjusted" numbers and have HUGE margins of error. If we look at ACTUAL YTD data through August 2009 and compare it to the same time last year we will find new home sales are actually down 27.8 percent from a year ago and this statistic is with a much smaller margin of error. I did a post about this with a complete analyis as well as illustrations of the margins of error this morning at

http://realestateconsumernews.com/real-estate-market/new-home-sales-up-0-7-percent-in-august-or-not-down-3-4-percent-from-a-year-ago-or-down-27-8-percent/

Wes

September 27, 2009 11:54 PM

Two probable reasons that sales are not rising:
- People see through the truth of the $8000 rebate and expect that housing prices will continue to fall, and
- There is such talk of the rebate being extended expectations are starting to form that it will be extended, further reducing the sense of urgency to buy property.

For a great example, put a piece of string on a table and try to push it.

Soothsayer

September 28, 2009 11:05 AM

Buying a home requires tremendous confidence on the part of the buyer. Confidence in their job and income-earning ability.

How many have that?

Erendira (Dira) Munoz

October 13, 2009 1:54 AM

I agree with the coment from "Soothsayer", the investor have to have a continuous income-earning ability and a savings account + a steady job., that will give any investor whether a first time buyer or not a tremendous confidence. Who this days have that??????

Austin Condos

October 15, 2009 7:09 AM

Those condo properties that are not on the beach itself but a stone’s throw away from the beach, sell for significantly lower price.

Jason

January 26, 2010 8:25 AM

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Jason

January 26, 2010 8:26 AM

If you are interested in selling or buying a house here is a lot of useful information http://www.dreamhomecompany.com

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About

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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