Sales of new homes down 21.6% in past year

WASHINGTON (MarketWatch) -- Sales of new homes dropped 4.3% in July to a seasonally adjusted annual rate of 1.07 million, the Commerce Department said Thursday. New-home sales are down 21.6% in the past year, the biggest drop since late 1994.
Inventories of unsold homes rose to an 11-year high, while median prices flattened out.
The report confirms a dramatic decline in real estate in July. Existing home sales fell 4.3% in July, the realtors reported Wednesday. Total home sales fell to 7.4 million annualized in July, the lowest since January 2004. Total sales are off 12.9% in the past year.
The Federal Reserve will be keeping a close eye on the impact of the housing bust on the rest of the economy as it tries to steer the economy between recession and inflation.
Economists just can't agree on how much pain will be felt. "This is the wild card in the economic outlook," said Ken Mayland, chief economist for ClearView Economics.
"Is the economy sailing into just headwinds or a hurricane?" wondered Peter Morici, a business professor at the University of Maryland. "The economy is likely slowing more than the Federal Reserve anticipated"
"Current trends in the U.S. housing market are consistent with just a modest slowing of the economic activity," said Lewis Alexander, chief economist for Citigroup Global Markets in his global update to clients. "That said, the pace of the downdraft in the U.S. housing market bears watching. It may be a leading indicator of a more significant correction in that sector and the U.S. economy overall."
The July sales pace was the lowest since February's 1.038 million. July's sales were weaker than the 1.10 million expected by economists surveyed by MarketWatch. There were also significant downward revisions for April, May and June data. See Economic Calendar.
Inventories of unsold homes rose 1.1% to a record 568,000 in July, representing a 6.5-month supply at the July sales rate. That's the largest months' supply since November 1995.
Inventories are up 22.4% in the past year.
Builders have said they are cutting prices and offering incentives to boost sales to keep inventories from building up.
The median sales price in July was up 0.3% year-over-year to $230,000. Because of sales incentives, the reported median sales prices overstate prices, Mayland said.
On Wednesday, the National Association of Realtors said sales of existing homes fell about 4.1% to a seasonally adjusted annual rate of 6.33 million, while inventories rose to 13-year high and year-over-year price appreciation was flat. Prices were up just 0.9% in the past year. See full story.
Builders' sentiment has collapsed in the past year, housing starts are down, and major builders have reduced their forecasts for construction for this year and next.
The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions are common.
The standard error is so high, in fact, that the government cannot be sure new-homes sales decreased at all in June. The 4.3% decline in July is statistically meaningless.
It can take up to six months for a trend in sales to emerge. New-home sales have averaged 1.10 million per month over the past six months, down from 1.12 million in the six-month period ending in June. The six-month sales average has fallen eight months in a row; it was 1.29 million in December.
Regionally in July, sales fell 21.3% in the Midwest and fell 8% in the South. Sales rose 11.7% in the West and 1.8% in the Northeast. In the past year, sales are down 42.9% in the Northeast, 35.4% in the Midwest, 23.4% in the West and 12.4% in the South.
Sales in the Midwest fell to the lowest pace in nine years in July.
Inventories in the Midwest are down 1% in the past year, but are up 30% in the West, 28% in the South and 33% in the Northeast. Rex Nutting is Washington bureau chief of MarketWatch.