Economists React: 'Don't Get Your Hopes Up'
WSJ ECONOMICS BLOG
New-home sales defied expectations, making a modest increase for July. Sales of single-family homes increased by 2.8% last month to a seasonally adjusted annual rate of 870,000. Year-over-year, they were down 10.2%. The median price was $239,500 in July, up from $238,100 in July a year ago, while the average price dropped to $300,800 in July, down from $311,300 a year earlier. Are the data signs of a sustainable rebound? Probably not, say economists and others. Here are some of their thoughts:
Hooray, new home sales rose in July. That was a surprise, but don't get your hopes up just yet that the housing market has hit a bottom. First of all, there have been increases periodically during this long period of decline. … Next, there was a huge increase in the West. If anyone truly believes the markets in the West have suddenly firmed, I have a bridge for sale. … Of course, there was a massive drop in the Northeast, but that too was not likely an indicator that the market there has collapsed. As for the other regions, demand eased in the Midwest and rose modestly in the South. In other words, there probably was little movement in sales across the country. – Joel L. Naroff, Naroff Economic Advisors
[N]et revisions to the Commerce Department's initial estimate have unbeliveably now been negative for sixteen straight months. [In this report, June was revised up but May was revised down by more.] Nor is the size of the revisions trivial. The average downward revision to initial estimates is around -60k. Given this rocky track record, the integrity of these data is exceedingly low. Anyone looking to make any kind of prognostications about the housing market on the basis on these data is well advised to bear this in mind. – Richard Iley, BNP Paribas
Sales have been extremely volatile in the first seven months of 2007, but on a clear downward trend despite the July rebound. Given the high rate of sales cancellations that home builders have experienced in recent months, it is difficult to get a line of sight to the net sales rates. … Sales in August will face significant headwinds from further tightening in credit conditions, reduced availability of mortgage credit as many lenders shuttered their doors, and upward pressure on mortgage rates, especially for "non-conforming" jumbo loans. – Brian Bethune, Global Insight
While very erratic, the July rise in new single-family home sales contrasts with a 7.3% drop in single-family housing starts in the month. While signs of adjustment have come and gone several times, this is the composition of activity that would best reduce housing's imbalances. Still, new home inventories fell only 5,000 from June, and 40,000 from a year ago. These declines in inventories need to be four times larger to truly clear excesses. – Citigroup Global Markets
If the credit shakeup leads to new lows in sales in coming months, then it would extend the housing construction recession into 2008. The jury is still out on whether this will be the case. We continue to look for an L-shaped recovery in housing with the drag from residential construction easing and coming to an end sometime in late 2007 or 2008. – Michael T. Darda, MKM Partners
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