Monday, July 26, 2010

Beating the Estimate Isn't Saying Much

Investors are reacting positively to today's report that new home sales in June were better than expected. However, better than expected isn't necessarily good. On a seasonally adjusted and annualized basis, June sales were 330,000 units. That's 20,000 better than the consensus estimate and 63,000 more than were sold in May. Yet it is 66,000 fewer units than a year ago. There is currently a 7.6 months supply of new homes on the market.

The tax credits, which expired in April, caused April sales to surge to 422,000 and May sales to plunge to 267,000. That's no surprise. The June figure is merely the market's attempt to get back to equilibrium. Unfortunately, the long-term trend is still down for both sales and prices. The median price for a new home fell to $213,400 in June from $216,400 in May. It was $214,700 a year ago. The large number of foreclosures on existing homes won't help support prices for new homes.

The housing market is still in a process of finding a bottom. It may be close to getting there. If you are in the market for a new house, it's probably not a bad time to buy--depending on where it is located and how long you are planning to live in it. However, the longer-term health of the housing market depends on the health of the employment market. As long as large numbers of people who want jobs can't find jobs, housing prices and sales were remain depressed.