Publication Date:
Fri, 2009-09-25 05:21
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After the 6.5 percent surge in July, the expansion of new-home sales stalled in August, according to a report from the U.S. Commerce Department and U.S. Census Bureau [1]. Sales rose from a 426,000 to a 429,000 annual rate. However, July sales had been initially reported to be 433,000. This is the same pause that was reported yesterday for August existing-home sales as well as earlier this morning for August durable goods sales. The pause is likely to show up in other August market reports. A pause after an initial surge at the beginning of a recovery period is not uncommon. It is occurring in this recovery because of the large scale of federal fiscal pump priming to jump start the recovery.
The late summer pause does not alter the forecasted progressive recovery both in housing and the overall economy that will eventually be dated to have begun in June or July. Fiscal shocks to the economy are designed to have a quick and large impact and then taper off quickly. August, September and possibly a little longer is the "taper-off” period. Both housing and the overall economy will either stall or grow modestly during this period. Then progressive recovery resumes.
The balance of the August new-home sales report is very positive. The inventory of unsold homes continued to decline pushing the months’ supply of new homes to 7.3 months. This is the lowest in 31 months. It is low enough to permit a gradual expansion of new home sales. But the months’ supply of homes for sale will have to drop to near six months to permit a rapids expansion of new home sales. Home builders will be uncomfortable about their inventory – and so will their lenders – until the months’ supply drops to near five months.
Home builders have 114,000 completed homes for sales and 110,000 homes for sale that are still under construction. Both of these totals are less than previous months and on track with the continuous decline for several years. While their inventory is shrinking absolutely and becoming less of a burden due to higher home sales, home builders are still carrying an excessively high inventory. This inventory will be drawn on to meet some sales over then next year, causing new home sales to recover faster than housing starts.
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More analysis from Jim Haughey [2]
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