New home sales
The U.S. Census Bureau data for May shows that sales of new homes fell 2.1% after improving for two months straight and inventory hitting historic lows. Compared to May 2010, however, new home sales are up 13.5%, a number which many had not predicted possible.
New home construction hit historic lows in February and many said that not only would home builder stocks never rebound to where they were in the past, but economists have asserted that the new home sector would never be the same.
Unemployment continues as homeowners are increasingly upside down in their homes or simply struggling because of underemployment or unemployment, while builders continue to struggle with obtaining financing to build more inventory. These two things have hampered the sector but do not necessarily spell eternal doom for builders.
This week, we reported that existing home sales dropped 3.8% in May, performing more poorly than had been anticipated. Sales for May appear to have dropped across the board, not just for new home sales.
What will it take for new home sales to recover?
Congress is unlikely to issue another tax credit incentive any time soon especially in light of the news in April that tax fraud pertaining to the home buyer credits surpassed half a billion dollars. The incentive was a legitimate boost for new home sales and existing home sales, but critics note that it was a short and false boom. Current sales are more indicative of the economy than prior to the tax credit expiration.
Government intervention is not likely the reason home builders will ultimately recover, it will be twofold- first, lenders loosening the chokehold they have on construction loans, even if slightly, and secondly, first time buyers and foreclosed homeowners exiting the rental market over the next few years. We don’t anticipate a rush on new homes nor a boom, but an eternal bust is not the future of the new home sector.