New-home sales swoon
Sales of new homes fell 4.3 percent in July, the biggest decline in six months and 21.6 percent below the same period a year ago, the Commerce Department reported today. It is yet another sign that the home-building market is in the midst of the "hard landing" that industry executives had previously expected to avoid. Sales for June were also revised downward.
Separately, sales of durable goods fell by 2.4 percent, more than twice what analysts has expected. The decline was led by a sharp decrease in sales of autos and commercial aircraft, which fell by 7 and 10 percent, respectively.
Economists said the market for new homes may be in worse shape than the government's figures show because they don't take into account rising cancellations reported by many home builders in recent weeks. "This was probably an even weaker month than it looks," says Michael Carliner, an economist with the National Association of Home Builders.
He expects new-home sales to continue to decline in the coming months, as the full effect of the past year's increases in mortgage rates is felt. That said, he believes the Federal Reserve's decision earlier this month to pause its inflation-fighting campaign (which has already helped cut mortgage rates by about a quarter of a percentage point) should help stabilize home buying by early next year.
The decline in new-home sales last month, to a seasonally adjusted rate of 1.072 million homes sold, came as the inventory of new homes for sale increased to 568,000, a new record. That represents a 6½-month supply at current sales rates, the highest in more than a decade and a number that analysts say puts buyers firmly in the driver's seat when negotiating a home purchase.
The lower sales figures for new homes came a day after a separate report showed that sales of previously owned homes--which represent the bulk of the market--also fell by more than 4 percent to the lowest in 2½ years, according to the National Association of Realtors. Inventories of existing homes grew to a record 3.856 million homes--a 7.3-month supply--and prices declined in most of the country, especially in the Northeast, where they tumbled 3.2 percent from the year-earlier period.
Home builders, too, have begun to reduce prices and offer free upgrades in hopes of luring more buyers. But so far it hasn't been enough to stem a growing tide of cancellations that have quickly hobbled the home-building industry. For example, on Monday luxury home builder Toll Brothers reported a 19 percent drop in earnings, due, in part, to rising cancellations and the write-down of land it had slated for development.
The rapid deterioration in the market has caught many industry executives off guard. Just a year ago, Toll Brothers' Chief Executive Robert Toll brushed off talk of a hard landing as his company announced record quarterly profits. "It appears to us that the basic fundamentals of wealth accumulation, constrained lot supplies, and growing demand should continue to support our business model," he said then.
But in comments to investors earlier this month, he said the slump he expected to avoid was likely to crimp his company's profits for two years or more. "It's very hard to pick a bottom," he said. "And anybody that tries to do that is probably going to get fooled."