July new home sales recorded their lowest level since the data were collected in 1963 and down 12% from June. The last three months of data are the three worst in history as sales dipped following the end of the home buyer tax credit deadline on April 30. (New home sales are recorded when a sales contract is signed. The deadline for taking possession was extended to the end of September). All four census regions recorded declines with the largest in the West (-25%) and Northeast (-14%) and smaller declines in the Midwest (-8%) and South (-9%).
Inventories of unsold new homes did not change, holding steady at 210,000, which is the lowest since September 1968. Months’ supply rose to 9.1 months because of the slow sales pace. The median sale price fell to $204,000 from $214,200 in July of 2009 or 5%. The fall is most likely a combination of reduced prices and a shift to more modest homes sold. In fact, the price distribution of homes sold picked up share in the $150,000 to $300,000 ranges where most first time home buyers purchase.
The slump is primarily due to consumer reluctance driven by recent softness in job formations and economic activity. Housing market components remain relatively attractive: historically low mortgage interest rates, cessation in house price declines and continued pent up demand from households not formed over the last several years. Depending upon assumptions about longer term household formations, there are between one-half million and one and one-half million unformed households that remained in their parents’ home, doubled up, moved in with relatives or otherwise postponed the normal transition from dependent to independent household.
The recovery is also geographically lumpy. States that have traditionally accounted for a large share of US housing production have fallen the farthest from ‘normal’ (defined as the average annual production from 2001-2003) and aren’t yet participating in any recovery. States that have traditionally accounted for a small share of US housing production are producing homes near or approaching their normal but their numbers do not impact the national levels. Three states, Florida, California and Georgia, typically account for one-quarter of US housing production but are not likely to produce one-third of their ‘normal’ level of housing in 2010. With the exception of Texas, which is both large and recovering, the seven states closest to their long term normal levels make up less than 4% of production in a normal year.
Until the larger housing markets begin to cure and begin their march toward normalcy, the national numbers will be weak even though there are good markets with good demand, low vacancies and stable house prices.