US New Home Sales Declined for the Fourth Consecutive Month in August

Location: Toronto
Author: RBC Financial Group Economics Department
Date: Tuesday, September 27, 2011

Sales of new single-family homes in the US declined 2.3% in August to a six-month low of 295,000 annualized units, which was in line with market expectations. The monthly decline is the fourth consecutive, following the revised drops of 0.3%, 1.6%, and 2.5% in July, June, and May, respectively (previously reported as declines of 0.7%, 2.9%, and 2.2%, respectively), and marks the slowest pace of sales since February. Despite the slower pace of sales, inventories as measured by months’ supply of unsold new homes edged up to 6.6 from July’s revised 6.5 (previously reported as 6.6) as the number of new homes on the market fell 1.2%.
The weakness in August was evident in the Northeast (-13.6%), West (-6.3%), and South (-2.4%), while the Midwest saw new single-family home sales rise 8.2%, marking the sixth consecutive month in which sales have held steady or increased.
The number of new homes available for sale declined by 1.2% to 162,000 in August, further extending the streak of consecutive monthly declines that began in May of 2007. The number of new homes available for sale, therefore, once again sets the record low for the series that dates back to 1963. At the current pace of sales, it would take 6.6 months to clear the entire inventory of new homes, slightly higher than the 6.5 reported for July. The months’ supply is in line with the series’ long-term average of 6.1 but well below the 9.0 seen in July of last year.
New home sales remain in the doldrums and homebuilders do not expect any improvement in the near term, with the National Association of Home Builders’ gauge of sales expectations for the next six month dropping to a three-month low in last week’s release. New housing continues to see its market share wane due to competition from cheap, distressed, existing properties as the sector now accounts for just 6.2% of total single-family homes sold across the US compared to a pre-recession long-term average of 16.6%. The Fed, in its SeptemberFederal Open Market Committee statement, took a specific step to support the housing market and maintain low mortgage rates by announcing that principal payments from its portfolio of investments will be reinvested into mortgage-backed securities; however, the combination of persistently weak labour market conditions, pessimistic consumers, and the constant flow of steeply discounted, foreclosed, existing homes onto the market will likely limit the potential effect for the new home sector during the forecast horizon.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.

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