Have new home sales hit a new normal? That's how the trend is beginning to look as new home sales were perfectly flat in August. They remained at the July rate of 288,000 annual sales, according to data from the Census Bureau. That came in worse than economists' expectation that they would hit 300,000. The demand for new homes remains incredibly weak.
First, here's the chart:
Just as a refresher, May's slightly worse tally of 282,000 of new home sales was the lowest rate since at least 1963 when the government began keeping track. The slightly better pace in August was 29% below new home sales a year earlier.
From the chart, it looks like new home sales may be stabilizing. Over the four months following the expiration of the home buyer credit, there has been very little variance, with the period's average at 293,000. By now, you might expect to see the distorting effect of the home buyer credit beginning to wear off. Yet new home sales haven't moved much. So we may, in fact, be seeing a level of sales that could continue until broader housing market and general economic sentiment improve.
Despite the incredibly low rate of sales, comparing this data to new home starts implies that builders are actually creating too many new homes. Housing starts rose to an annualized pace of 598,000 in August, and have averaged 567,000 over the past four months. It's pretty easy to conclude that 293,000 new home sales can't account for 567,000 new homes being built. In fact, it isn't even close. If overbuilding continues, then this will add to the already overabundant inventory of unsold homes.
It's hard to find any good news in the market for new homes right now. Demand is anemic, with new sales apparently stabilizing around 300,000 per year. Meanwhile builders are too aggressive, with starts and permits remaining near the annualized rate of 600,000. That will continue to put pressure on housing prices, but also probably force more construction job cuts eventually.