New home sales at new low

The other shoe drops

Yesterday’s wretched report that existing home sales fell to the lowest reading since 1995 is being followed up today by the government’s report that new home sales slipped last month to the lowest level on record.

Sales of new single-family houses declined by 12.4% in July to a seasonally adjusted annual rate of 276,000, well below the consensus forecast by Bloomberg of a small increase to 340,000 units.  The supply of houses available jumped from 8.0 months to 9.1 months, which may put additional pressure on prices.

Existing home sales make up over 90% of the housing market, while new home sales  account for the rest.   Both, however, have been hit hard in the wake of the expiration of the tax credit, as many buyers decided to move up their purchase decisions and take advantage of the free money that was offered by the government.

Despite record low mortgage rates, potential buyers remain on the sidelines amid concerns about the economy and the potential for further job losses.  The general belief that home prices may not yet have stabilized is also fueling worries.

Additionally, builders (see Home builders continued to struggle …) are having to deal with the still high-level of foreclosures of late-model houses that had previously benefited from the easy access to subprime mortgages.

Until the factors above are rectified, housing is likely to continue to struggle, even with low mortgage rates.