The Commerce Department released the Census New Home Sales Survey data this morning, and the reported numbers were worse than economists anticipated and represented a slight decrease month-over-month.  Sales of new single-family homes for June came in at a preliminary figure of 312,000 on a seasonally adjusted annual basis, down 1% from a downwardly revised 315,000 rate in May.  Compared to a year ago, the June volume was up 1.6%.  The median sales price of new homes during the period was $235,200, up 6% from May and up 7% from June of 2010.

Declining sales volumes and rising prices do not indicate housing demand is recovering.  The improving home prices are a reflection of different product selling and more normal buyers—compared to what we’ve seen over the last two years—doing the buying.

While the Census data provides a national view based on survey results from across the country, the data is not granular enough to provide market level estimates, nor does it take into account any cancellation of sales contracts prior to closing of escrow.  For that reason, it’s helpful to take a moment and examine actual closing data from June.  While closings lag sales, they provide actual results, real achieved pricing metrics, and greater visibility into local performance.

We estimate new home closing figures based on the actual deed closings of newly constructed homes tracked in Housing IntelligencePro, the single largest authoritative source on new home and housing data in the U.S.  Our estimates indicate a decline in the annualized rate of new closings of 6% in June after 3% drops in April and May.  Nationally the new home market is bouncing along the floor and clearly not improving in aggregate.

Final June closing figures will likely reflect more than a 30% drop from June 2010 when there was a surge in volume as the tax credit expired and buyers rushed to close escrow prior to the deadline.

Because of the temporary and illusory impact of tax credits, we are finding it useful to look at the new home data now by comparing metrics pre- and post- tax credit expiration.  Here’s what we are finding.

Prior to the tax credit expiring, new homes had a minor rebound, delivering an annualized rate of over 430,000 new home closings at its peak.  After the tax credits expired, we’ve seen that closing rate fall to 310,000, a decline of 28%.  That’s why 2010 was such a roller coaster year as the tax credits made it look like the bottom was reached in 2009 but the second half of the year ushered in the period of the true bottom.

Home price declines are one of the most significant factors causing depressed demand and inflated existing home supply as price declines bring on more foreclosures.  Bank sales of previously foreclosed homes are the cause of the continued price declines.  The good news is that bank sales also have declined on an annualized rate pre- and post-tax credits.  By our calculations, bank sales had annualized closings of almost 1 million under the tax credit and now are delivering 900,000, a decline of 10%.  The bad news is that the new home to REO ratio is down to 0.31.  Normally this ratio is in the double digits and is not a fraction.  The fraction indicates that banks continue to outsell builders.

We track housing activity in over 800 markets and can track activity down to the subdivision level, but it’s tough to find areas that buck the national trend.  The best results are in smaller markets, but there are a few of the top 75 markets showing some positive signs in the trend data.

Four top 75 MSA’s have higher new home closings post tax credits.  Naples-Marco Island, FL, Jacksonville, NC, The Villages, FL, and McAllen-Edinburg- Mission, TX, are up 14%, 9%, 6%, and 6% respectively.

Four top 75 MSA’s have improving new home to REO ratios: New York-Northern New Jersey-Long Island, NY-NJ-PA, Naples-Marco Island, FL, Indianapolis-Carmel, IN, and Cape Coral-Fort Myers, FL.  Of these, New York passed the critical “1” level to 1.15.  So builders in New York are finally outselling banks again.

In the post tax credit era, we have 23 MSA’s where builders are outselling banks.  That list of markets appears in the table below along with their new home to REO closing ratio.



As the pre- and post-numbers indicate, many of the above markets have lost some ground since the tax credit expired, but we still believe that builders outselling banks is a simple indicator of market stability.  These are the markets where prices are more stable and where demand should be returning first.  These markets are also some of the healthiest local economies in the country, with much better employment conditions that the national statistics.

We anticipate that this recovery is going to be a long, gradual process with healthy local markets improving first and unhealthy markets remaining depressed for some time.  Our latest new home sales forecast calls for ending 2011 with 323,000 new home sales, which means the pace of sales will remain about where we are now with only minor improvements for the rest of the year.  Looking forward, we expect new home sales of 407,000 in 2012, an increase of 26%.

It would take an economic miracle to see significant upside to these numbers.  Unfortunately downside risk remains if the economy heads into a double dip as a result of the budget deficit fights.  Even worse, if the budget deficit discussions result in legislation that eliminates or reduces the mortgage interest deduction, we will see another round of home price declines begetting more foreclosures and thus declining home ownership rates and an elongated path of seeing banks outsell builders.

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