New Home Sales Report Disappoints

Written by: David Lereah   Wed, October 28, 2009 Beyond Today’s News, Market Activity

Sales of new homes fell in September after rising for five consecutive months, a government report said Wednesday.

New home sales fell 3.6 percent to a seasonally-adjusted annual pace of 402,000 in September the Commerce Department reported. The September pace was below the downwardly revised 417,000 annual pace registered in August. New home sales for the month were down 7.8 percent from a year ago.

The decline in sales was mixed across the nation. New home sales were flat in the Northeast, down 10 percent in the South, down 10.6 percent in the West and surged 34 percent in the Midwest.

The median price of a new home rose to $204,800 in September from $195,200 in August. The median new home price was down 9 percent from a year ago.

The government reported that the months’ supply of new homes stayed at 7.5 in September compared to August. Homebuilder inventory fell to 251,000 homes on the market in September compared to 262,000 new homes available for sale in August. September’s inventory represents the fewest new homes available for sale since November 1992.

The 402,000 annualized new home sales in September were disappointing and were significantly lower than the 440,000 annualized new home sales that economists surveyed by had expected for September.

The retrenchment in September’s new home sales came after five months of gains. Given that the economy is improving (monthly job losses are decreasing) and mortgage rates continue to hover near historic lows, it is likely that sales are slowing because the positive impact of the $8,000 first time home buyer tax credit which a set to expire at the end of November, is fading.

New home sales are likely to be wobbly in the coming months even if the tax credit is extended for another 6 months which Congress will soon determine. According to, distressed homes (foreclosures and short sales) are expected to total 2.4 million next year, up from an estimated 2.1 million distressed homes this year. Mounting foreclosures could keep the housing sector from fully recovering.

On a positive note, new home inventories are relatively low, job losses are abating and home affordability is relatively high, suggesting that the worst is over for the nation’s housing sector. However, considerable obstacles persist, suggesting that housing recovery will be a slow and modest one.

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