New-Home Sales Down Sharply in August

The government released its August new-home sales report Thursday. Details below:

From the report:

Sales of new one-family houses in August 2008 were at a seasonally adjusted annual rate of 460,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.5 percent below the revised July rate of 520,000 and is 34.5 percent below the August 2007 estimate of 702,000.

The median sales price of new houses sold in August 2008 was $221,900; the average sales price was $263,900. The seasonally adjusted estimate of new houses for sale at the end of August was 408,000. This represents a supply of 10.9 months at the current sales rate.

In a report, Brian Wesbury, the chief economist at First Trust Advisors, explored the significance of the new figures in terms of housing inventory:

The pace of new home sales broke out to a new low last month, after appearing to form a bottom in the previous several months. However, the pace of home building is now so low (equal to the low put in during the 1990-1991 recession) that even at this slower pace of sales, residential builders continue to work off excess inventories. Total new home inventories peaked at 570,000 in mid-2006 and are now down to 405,000. The number of unsold completed new homes - a key factor behind future construction and price changes - peaked in January 2008 at 199,000 and is now down to 166,000. The inventory of completed new homes dropped 16,000 in August alone, by far the steepest one-month drop on record. There is more pain to come in the housing sector but the light at the end of the tunnel is gradually getting closer.

And here's what Joseph Brusuelas, chief economist of Merk Investments, had to say about the figures in a report of his own:

Given the freezing up of the credit market, we do anticipate that the September and October data will be frightening. The quantity of purchases in August represented a 17 year low and there is little doubt that the declines in the months ahead will exceed that record. Prices will have to adjust in a much more rapid pace, once the situation in the credit markets returns to something approximating normal.