July turned out to be yet another lousy month for home sales.  The Commerce Department released the Census New Home Sales Survey data last week, and the reported numbers were in line with analyst expectations of somewhat flat volume, especially after the downward revisions in the June data were taken into account.  Sales of new single-family homes for July came in at a preliminary figure of 298,000 on a seasonally adjusted annual basis, down 0.7% from a downwardly revised 300,000 rate in June.  Compared to a year ago, however, the July volume was up 6.8%.  The average sales price of new homes during the period was $272,300, up 1% from June and up 8% from July of 2010.

However, considering that July was the month that we appeared to be racing the debt ceiling clock to Armageddon, flat month-over-month performance on new home sales is a good thing.  While current levels of sales volume are anemic, and probably will not see substantial recovery for several years (see our entry, The 2015 new Home Recovery), the stabilization in prices is an important development.    Flat volume and stable prices are the first step in consumers regaining confidence in considering purchasing a new home.  For some, both new and resale housing may become an attractive investment option when compared to a faltering stock market (see our entry, Housing a Safe Haven?).

Real transaction data provided by Housing IntelligencePro mirrors the stabilization in the Census survey.  Based upon the deed records thus far received for the months of July and August, we are finally beginning to see some positive year-over-year percent changes.  This is largely a result of the drop off in closings in July 2010 after the tax credit expired (see our entry, 2010 Tax Credit Sullies Current Trends).   In the coming months, we should see the year-over-year and annualized trends in new home closing volume smooth out, and provide a more stable foundation for the market.  Based on current projected results for July and August, the annualized change for each month should be between 0.5% and 1%, a substantial improvement from the 6% decline in June that occurred because of the effect of the tax credit closing deadline in June 2010.

In terms of local market performance, July data looks most promising for several large markets, including hard hit housing markets in Florida.  Jacksonville, FL, and Tampa, FL, are both showing preliminary year-over-year gains in July new home volume.  New York City, Nashville, and Atlanta round out the top five markets with improving year-over-year new home numbers.  Western markets aren’t faring as well, as we estimate the weaker markets include Las Vegas, Riverside-San Bernardino, CA, and Los Angeles.

Our conclusion is that we are ending 2011 with conditions that are much more stable for new home sales to stage a gradual increase starting in 2012.  The absorption numbers nationally and by market are abysmal, but so are the inventory levels.  Early signs of year-over-year increases and positive new home price growth portend a much better future than the long, disturbing road we’ve been on since 2007.

But clearly there are still obstacles to recovery.  The Mortgage Bankers Association’s Purchase Index suggests that sales activity in August remained weak.  Despite mortgage rates falling to all-time record lows, the purchase index has fallen for three straight weeks to its lowest levels since December 1996.  Pending Home Sales data released this morning by the National Association of Realtors, which are supposed to be a forward-looking indicator of housing activity, also declined slightly in July.  While it sounds like doom and gloom, home prices are still holding up relatively well.  As it was discussed in last week’s Key Indicator, lower demand is no longer negatively impacting prices like they were during the beginning of the housing bust.  This suggests there is some stability in the housing market and maybe even some level of safety.  Renewed concerns of slower economic growth threaten to hurt labor market conditions but recent first-time unemployment claims data suggests that the job market has not been deteriorating yet.

The Economy
Personal incomes in July increased to $13,067.3 billion compared to an upwardly revised figure of $13,024.9 billion in June.  Personal incomes have now increased for 21 consecutive months.  Personal incomes are up 5.3% from $12,409.2 billion in July of last year.  Personal incomes have recorded 19 straight months of year-over-year gains.  After recording its first drop in almost two years last month in June, consumer spending rebounded in July.  Personal consumption expenditures, PCE, increased 0.8% from last month to $10,750.8 billion.

Preliminary estimates for second quarter GDP growth showed the economy growing at a slower rate than advance estimates suggested. The U.S. economy expanded at a 1.0% clip in the second quarter which is weaker than the 1.3% growth reported in advance estimates. However, this marks the eighth straight quarter that the U.S. economy has expanded. The main source for the downward revisions was weaker business spending and slower trade activity.

Initial jobless claims recorded another unexpected increase this week.  First-time unemployment claims increased by 5,000 to a seasonally-adjusted figure of 417,000 in the week ended August 20th from an upwardly revised figure of 412,000 in the previous week.  This is the second straight week that first-time jobless claims have increased.  However, the Labor Department did state that at least 8,500 of those claims were due to the worker strike between union members and Verizon Communications.  Now that the labor dispute is settled, first-time jobless claims can be expected to stabilize in the coming week.

Housing Market
The National Association of Realtors’ Pending Home Sales Index declined 1.3% from the previous month to a reading of 89.7 in July.  However, it is 14.4% higher than it was this time last year when it stood at a reading of 78.4.  It is important to keep in mind that activity this time last year was depressed due to demand being pushed forward to the early part of the year because of the federal homebuyer tax credit.

July marked another month where new and existing home sales moved in tandem lower yet again.  Last week, the National Association of Realtor’s reported that existing home sales in July fell 3.5% from the previous month.  This week, data from the Census Bureau showed that new home sales also moved slightly lower in July as well.

New home sales in July declined 0.7% from the previous month to a seasonally-adjusted annual rate of 298,000 units.  This is the slowest annual pace for new home sales since February.  New home sales for the previous three months were revised lower by 19,000 units.  New home sales are still up 6.8% from the 279,000 units in July 2010 but are 27.5% lower than the July 2009 figure of 411,000 units.  However, it is important to keep in mind that sales activity this time last year fell to near record-lows after demand dried up following the expiration of the federal homebuyer tax credit at the end of April.

Weaker demand in the new home market pressure median new home prices lower in July.  Median new home prices declined to $222,000 from a June figure of $236,800.  However, median new home prices are up 4.7% from this time last year and are 3.6% higher than they were this time two years ago.  This is the second straight month that median new home prices have recorded year-over-year gains.

Lower home prices helped boost the new home affordability last month.  The new home affordability index rebounded to a reading of 59.2% in July from 56.8% in June.  This is the highest new home affordability has been since November 2010.  The new home affordability ratio for June fell to its lowest levels since January before jumping in July due to a drop in median new home prices.  Average mortgage rates were slightly higher in July but were more than offset but the decline in home prices.

In July, new home inventories declined from the previous month to 164,000 units on a non-seasonally adjusted basis compared to 166,000 units in June. New home inventory has now recorded 47 straight months of declines and has not recorded a monthly increase since May 2007. New home inventory levels are at new all-time record lows. New home inventory on a seasonally-adjusted basis declined to 165,000 units in July from a June figure of 166,000 units.

National average mortgage increased from the previous week to 4.22% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on August 25th.  The average rate on a 30-year fixed loan is coming off an all-time record high last week.  This is the first time rates have increased in the past four weeks.  Rates have now averaged under 5.0% for 27 straight weeks.

In the week ending August 19th, the MBA’s seasonally-adjusted purchase index dropped 5.73% from the previous week and was down 7.39% compared to this same time last year.  This is the third straight week that the purchase index has declined and the lowest it has been since December 1996.

For additional market-level data and analysis please visit our website at http://www.housingintelligence.com.  For more detailed information on  these and other indicators, please visit the following links: