The U.S. Commerce Department reported today that new home sales in the U.S. rose 23.6% in June to a seasonally adjusted annual rate of 330,000. The report follows a dismal report last month of new home sales falling to a revised level of 267,000, down 36.7% from April.
Homebuilders’ stock prices are getting a lift on the report. KB Home (NYSE:KBH) shares are up about 4%, Toll Brothers Inc. (NYSE: TOL) is up about 2.5%, Lennar Corp. (NYSE: LEN) is up about 3.4%, and PulteGroup, Inc. (NYSE:PHM) is up about 4.5%. Home improvement stocks
The Home Depot, Inc. (NYSE: HD) and Lowe’s Companies Inc. (NYSE:LOW) are also up around 1.5%.
While today’s report lifted stock prices, it’s still weak — the second lowest sales rate ever. The annual new home sales peaked at 1.39 million in July 2005, and averaged more than 600,000 annually between 1983 and 2007. The 2009 rate was just 375,000, still higher than the current number for June.
The National Association of Realtors reported last week that existing home sales fell by 5.1% in June to a seasonally adjusted annual rate of 5.37 million homes.
The end of the federal tax credit in April for first-time home buyers is getting some of the blame for the weak sales in May and June. The tax credit brought home sales forward into the first four months of the year. Record low mortgage rates and plentiful supply have not been enough to resuscitate new home sales.
High unemployment, though, is the main culprit. The troubles in the market for new homes keeps unemployment high, which in turn reduces the number of people looking to buy homes. If you don’t have a job, or if you are afraid that you won’t have one for much longer, you’re usually not in the market for a new place to live.
Because new home construction usually leads job creation as the U.S. pulls out of a recession, the current unemployment situation is particularly intractable.
By one estimate, there are 1.7 million excess housing units available in the U.S. The U.S. Census Bureau reported last week that about 505,000 housing units would be added to the U.S. stock of housing in 2010. That’s 22% fewer than were added in 2009. That’s some good news since the stock of housing won’t be growing much for the rest of this year.
The other moderately good news is that the number of new U.S. households that will be formed in 2010 is likely to be considerably lower than the 1.1 million that are formed in an average year. The lower formation can be laid at the doorstep of the weak economy, but the upside is that there is sure to be some genuine pent-up demand for housing. After all, how long can someone be expected to live in his or her parents’ basement?
In the end, though, new and existing home sales are driven by confidence in the economy and low unemployment. Neither of these conditions looks to be on the horizon any time soon.
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