New-home sales hit a 40-year low
Wednesday, August 25, 2010; 9:07 PM
Sales of new homes dropped to their lowest level since the government started tracking the numbers more than four decades ago, offering an ominous sign for the direction of the already fragile housing market.
The Commerce Department's report, released Wednesday, was the second this week to underscore home buyers' crumbling confidence.
It said new homes sold in July at an annual rate of 276,000, off 12.4 percent from June's pace while plummeting 32.4 percent from a year earlier. That's the lowest level since 1963 and far worse than what analysts expected.
The report comes a day after the National Association of Realtors said sales of existing homes in July plunged to their lowest point in more than a decade. Sales were down 27.2 percent from June, the largest monthly drop since 1968.
Some housing experts attributed the weak results to the expiration of a home buyers' tax credit in April, which lured people to buy homes earlier than they had planned and created a buying frenzy in early spring that ate into future purchases.
But many economists say the reports show that the weakness in the real estate market cannot be explained solely by the skewed sales generated by the tax-credit program. Deep-rooted fears about the job market and the direction of the broader economy may now be making prospective home buyers more reluctant to pull the trigger on a major purchase.
"There's clearly something more at play here," said Mark Vitner, a senior economist at Wells Fargo Securities. "The economy is backsliding a little bit. . . . It seems clear that consumers are holding back on committing to major purchases, such as buying a home."
These purchases plunged in every region of the nation, led by a 35 percent drop in the Northeast, followed by a decline of 25.5 percent in the Midwest, 15.1 percent in the South and 9.8 percent in the West.
The government also reported that the average price of a new home dropped to $253,300, the lowest reading since early 2003. Meanwhile, homes are sitting on the market for about 11 months, said Patrick Newport, an economist at HIS Global Insight. In a healthy market, the norm is about five months, he said.
Although new-home sales are dwarfed by activity in the existing-homes market, they are closely watched because they are a sign of the health of the construction industry, which creates a significant swath of jobs and contributes to economic growth.
The Commerce Department also reports new-home sales when contracts are signed, so many experts see the data as an indicator of future sales and an up-to-date measure of consumer appetites.
Besides new and existing homes sales falling dramatically, mortgage applications have fallen 43 percent between late April, when the tax credit expired, and early July. The combined data suggest that a rebound in the real estate market is unlikely anytime soon, said Michael Fratantoni, a vice president at the Mortgage Bankers Association.
Applications have picked up only slightly since early July, even though interest rates on a 30-year, fixed-rate mortgage are hovering in the tantalizingly low mid-4 percent range.
On Wednesday, the mortgage bankers group reported that mortgage applications climbed 4.9 percent in the week ended Aug. 20 from a week earlier because of strong refinancing activity. But the new applications from home buyers were up only 0.6 percent.
Meanwhile, luxury home builder Toll Brothers said Wednesday that fewer home buyers signed contracts across all of its markets, even though it reported a surprisingly good profit for the quarter that ended in July 31.
The Horsham, Pa., company said it earned $27.3 million, or 16 cents per share, better than analysts' expectations. That was an increase from its nearly $500 million loss during the same time last year.