New home sales in June fell by 1.0% from May, to a rate of 312,000. Relative to a year ago, sales are up 1.6%. While the rebound is more than welcome, it is still a very dismal rate of new home sales. Also, there was a downward revision to the May numbers of 4,000 to 315,000. Thus, relative to where we thought we were, it could be seen as a 2.2% decrease.
The June level was worse than the expected rate of 320,000. The fourteen lowest months on record (back to 1963) for new home sales have all been in the last fourteen months. New home sales have only exceeded the 400,000 level three times since September of 2008, when the financial markets collapsed. The most recent time was in April 2010 as sales were inflated by the rush to get in under the wire and collect the homebuyer tax credit.
Unlike used home sales, each new home built creates a huge amount of economic activity. Not only are low new home sales bad for the big homebuilders, but also for all the companies that make the products and supplies that go into making a new house.
In terms of employment, it is not just all the roofers and framers that lose jobs due to weak new home sales, but employees at all the firms that make the stuff that goes into making a new home. Of course, if those employees are out of work, they are not spending on other goods and services dragging down a host of seemingly unrelated businesses.
With the prices of used houses weak, it makes selling a new home that much tougher. After all, a used home is a very good substitute for a new home.
Even extremely low mortgage rates have not been enough to get things going again. We still have extremely high vacancy rates — both of apartments and houses sitting empty — although lately we have seen some improvement in the rental market. Until that excess is absorbed, it is unlikely that we will get anything like a robust housing sector.
Even a tripling of the new home sales rate from current levels would bring us to what was considered a normal rate of sales back in the 1970’s and 1980’s. Back then we had far fewer people, and thus a lower need for places for people to live.