New home sales unexpectedly plunged today, with the biggest drop in over a year.
New U.S. single-family home sales in June fell by the most in more than a year and prices resumed their downward trend, suggesting a set back for the budding housing market recovery.
The Commerce Department said on Wednesday sales tumbled 8.4 percent to a seasonally adjusted 350,000-unit annual rate, the lowest rate in five months. The percent decline was the largest since February 2011.
May’s sales pace was revised up to 382,000 units from the previously reported 369,000 units, taking some of the sting from the report.
Economists polled by Reuters had forecast sales at a 370,000-unit rate last month. Compared to June last year, new home sales were up 15.1 percent.
Actual New Home Sales
Reader Tim Wallace provides a look at actual new home sales, six-month running totals, not seasonally adjusted, not annualized, vs. prior years.
Reflections on the Housing Recovery
Even with today’s reported decline, new home sales have likely bottomed on an annual, cumulative-total basis.
However, don’t expect much in terms of recovery.
Debt overhang is immense, and student debt is particularly problematic. Lack of jobs coupled with high student debt is capping family formation. Kids out of college are deep in debt and holding off getting married, starting families, and therefore buying houses.
Moreover, home sizes will trend lower and price recovery will be anemic because of boomer demographics. Retired boomers looking to downsize have few buyers able or willing to buy.
Bank-owned real estate (REOs) and shadow inventory are hugely underestimated. That too will pressure prices and sales.
The good news is home sales will add to GDP.
The more realistic news is structural headwinds are immense, demographics are poor, and job prospects for college graduates are poor. The bottom in new home sales may be in, just don’t expect anything close to a normal housing-led recovery, because it’s not going to happen.
Mike “Mish” Shedlock
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