Existing home sales are up, but new home sales are down. What’s going on?


Housing construction boomed last month. Sales? Not so much. (Gene J. Puskar / Associated Press)

Sales of existing homes shot up in July. Sales of newly-built homes fell. Behind the numbers, however, lurked the same old story: The housing market has yet to fully recover.

The Commerce Department reported Monday that new home sales dropped 2.4 percent from June to a seasonally adjusted annual rate of 412,000. Normal would be closer to 800,000, industry figures show, which means sales are only about half way back to where they should be.

Only a few days earlier, the National Association of Realtors reported that sales of previously-built (or existing) homes jumped 2.4 percent in July to their highest level since September, reaching a seasonally adjusted annual rate of 5.15 million. That’s closer to where it should be but not quite there. Based on the size of the population and recent job gains, a normal sales rate would be 5.5 million or more.

This helps explain why the mix of homes available to potential buyers is totally out of whack.

In more normal times, six existing homes are sold for every new home, said Jed Kolko, chief economist at Trulia. During the depths of the housing bust, the ratio reached 14 to 1. Now the ratio is closer to 12.5 to 1 -- even though 41% of Americans surveyed by Trulia say they would prefer to buy a newly-built home over one with previous owners.  (A sizeable chunk of them, however, are not willing to pay the 20 percent premium that's typically attached.)


 

"It’s a sign that the recovery still has a ways to go,” Kolko said. “The most important thing it tells us is that single family construction is still way below where it was even before the bubble.”

The decline in new home sales doesn’t mesh with other recent data.

Last week, the Commerce Department reported that housing construction took off in July, reaching the highest level in eight months. While most of that activity was driven by the construction of apartment buildings, starts of single-family homes increased 8.3%.

The industry’s closely-watched sentiment index released last week found that builder confidence in the market for newly-built, single family homes rose two points in August to its highest level since January. Meanwhile, mortgage rates have remained low, which should be helping the new home market.

Maybe the July sales figures won't look so bad in another month. The new home sales numbers are volatile because they draw from a small sample size, and they are often revised, sometimes quite dramatically.

 

Dina ElBoghdady covers housing policy for The Washington Post.
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