New-Home Sales Surprise to the Upside
By Tony Crescenzi
RealMoney.com Contributor
8/24/2007 10:45 AM EDT
URL: thestreet.com
New-home sales were much higher than expected in July, running at an annualized pace of 870,000, compared with forecasts for a pace of 820,000. The sales pace for June was revised upward by 12,000 to a pace of 846,000, although May's sales pace was revised downward by an equal amount.
The sales pace should be discounted somewhat by what might be a pickup in the rate of cancellations, as many prospective homebuyers probably faced difficulty obtaining a mortgage in August. As for inventories, the number of unsold homes fell again, bringing the tally to it lowest since January 2006.
Still, the biggest inventory problem lies in the older-home arena, in existing homes.
I have been saying for a number of weeks that there was potential for an upside surprise (relative to the consensus forecast) in both the new- and existing-home sales figures, noting that mortgage applications had been running unusually strong.
While it is likely that mortgage applications are being inflated by difficulties in obtaining a mortgage, the levels are high enough to suggest that home sales have turned up a bit, likely in response to lower prices and increased incentives. Americans love a sale, and housing is on sale, especially in the older-home arena, where foreclosures are resulting in deep discounts.
If not for recent credit problems, the combination of terrific demographics, lower prices and sturdy income gains would be a recipe for recovery in housing. The demographics are such that larger than normal amounts of people are entering homebuying age. The number of people aged 25-29, considered the prime age group for first-time home-buying, is rising faster than normal and will continue to do so for the next decade, and the number of people aged 55-plus is also rising fast and will do so for the next decade. Both of these factors will sow the seeds for the next housing boom. |
