New home sales spike as prices fall, tax credits offered

Sales of new homes rose by an unexpectedly high 11% during June -- the largest monthly rise in eight years, according to the Commerce Dept.

HOWEVER (and this is an important note that's never noted in these stories), is that the sample size that's used in this report is quite small -- less than 4% of permit reporting places in the country.

Here's how it works: surveyors contact builders of new homes who have pulled permits in the 19,000 or so jurisdictions that issue building permits (cities and counties). They then contact these builders to find out if these permitted homes have sold. For those areas in which they don't directly contact permit reporting places or builders, they estimate.

That's why we see swings in these numbers when the numbers are re-verified a few weeks later, so I'd look for an adjustment downward in the weeks ahead. You heard it here first!

So can one month make a trend, or is this simply the result of people taking advantage of tax credits and low interest rates? From a story in the New York Times:

Sales of new homes in the United States posted their largest monthly gain in eight years in June, the government reported on Monday, a sign that the housing market is bottoming as buyers take advantage of lower prices.

The Commerce Department reported that new single-family home sales rose 11 percent in June, an increase that dwarfed economists’ expectations of a 3 percent increase. The pace of home sales rose to a seasonally adjusted rate of 384,000 a year, the highest level since November.

But the figures offered no sign that the housing market had returned to health.

Despite the monthly increase, sales of new homes were still down 21 percent from June 2008. The market is still swamped by a glut of for-sale houses. And new homes, facing competition from cheap foreclosures, are sitting on the market for close to a year before they sell, compared with a median time of six months on the market in 2007...

The figures were the latest evidence that a three-year slump in the country’s housing market was leveling off as prices fell back and some builders and buyers began to step tentatively back into the market. Earlier this month, the government reported that housing starts rose 3.6 percent in June from a month earlier, and a trade group reported that sales of previously owned homes also rose for another month.

“Sales are picking up a little,” a senior economist at 4Cast, David Sloan, said. “Whether it’s going to pick up any momentum is really the key. I think we have to be doubtful about that.”

On Tuesday, a closely watched measure of home prices will be released, offering some hints about whether the long plunge in housing values is abating. Economists are expecting a 17.9 percent year-over-year decline in prices in the Standard & Poor’s Case-Shiller Home Price Index.

Although new-home sales have risen for three months, many economists worry that rising unemployment, stagnant wages and continued tightness in lending markets will weigh down the housing market for the rest of the year...