For those seeking hope in the better-than-expected 23.6 percent jump in new home sales in June: it's only one month's data, it's from a deep low in May, and the sales pace remains near the lowest since records started being kept when John F. Kennedy occupied the White House.
The housing market still faces an array of challenges, not least of which is persistent joblessness with almost 15 million Americans out of work. People remain reluctant to spend, despite record low interest rates, and banks remain reluctant to lend.
"From our perspective, with the unemployment rate still very high, a lack of demand for mortgages and banks not willing to make significant mortgage loans at this point, you are looking at a very moribund home sales market. That is true whether you are looking at the new or existing home sales space. We see it continuing to hover right here near the lows," said Tom Porcelli, senior market economist at RBC Capital Markets.
The Commerce Department said Monday sales jumped 23.6 percent to a 330,000 unit annual rate from a downwardly revised 267,000 units in May. The sales pace last month was the second lowest since records started in 1963.
But the percentage increase was the largest rise since May 1980, and partially unwound the prior month's historic 36.7 percent decline. And the jump was better than expected. Analysts polled by Reuters had forecast new home sales rising to a 320,000 unit pace last month from May's previously reported 300,000 units.
"It was better than expected on the headline but you would be doing yourself a disservice if you didn't notice that there was also a significant downward revision to the prior month. So if you average the last couple of months you are looking at a run rate of about 300,000, which is basically near an all-time low," Porcelli said, warning people not to get caught up in the headline.
"You have to look at the overall report, and what you notice from that is there is not a lot of activity going on in the new homes sales space," he said.
Recent data have suggested the economy's recovery from its longest and deepest recession since the 1930s moderated somewhat in the second quarter. Economists expect weak housing activity to act as a drag on growth for much of the year.
The government is expected to report on Friday that gross domestic product growth slowed to a 2.5 percent annual rate in the April-June period from a 2.7 percent pace in the first three months of the year.
The housing industry received a boost this spring when the government offered tax credits to homebuyers. But since they expired in April, the number of people looking to buy has dropped, even with the lowest mortgage rates in decades available.
"There's no question that this is a weak number, but it seems to be more stable," said Stuart Hoffman, chief economist at PNC Financial Services Group. "The bottom line to all of this is that we need more jobs."
Sales are down 72 percent from their peak annual rate of 1.39 million in July 2005. More than 600,000 new homes were sold annually from 1983 through 2007. After the housing bubble popped, sales plunged to 375,000 last year. That was the weakest yearly total on records dating back to 1963.
New home sales made up about 7 percent of the housing market last year. That's down from about 15 percent before the bust.
Weak sales mean fewer jobs in the construction industry, which normally power economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders. The impact is felt across multiple industries.
Builders have sharply scaled back construction in the face of a severe housing market bust. The number of new homes up for sale in March fell 1.4 percent to 210,000, the lowest level in nearly 42 years.
Due to the sluggish sales pace, it would take eight months to exhaust that supply. That's above a healthy level of about six months.
The median sales price in June was $213,400. That was down 0.6 percent from a year earlier and down 1.4 percent from May.
"Looking at the median price, this is one of the scariest figures in this report, we're down 0.6 percent from where we were at this time last year. The idea that the economy was quite robust for the first three months of the year and now we've taken a significant step back is clear," said Lindsey Piegza, U.S. economist for FTN Financial.
Regionally, new home sales rose by 46 percent in the Northeast, 33 percent in the South and 21 percent in the Midwest. The West posted a decline of nearly 7 percent.
Still, the impact of a 10 percent drop in home construction has about one-third the impact now as it did in 2006, according to economists at Bank of America-Merrill Lynch.
Last month's surge in sales saw the supply of new homes available for sale dropping to 7.6 months' worth from 9.6 months' worth in May.
The number of new homes on the market dropped 1.4 percent to 210,000 units, the lowest level since September 1968. The median sale price for a new home fell 1.4 percent last month to $213,400. In the 12 months to June, prices dipped 0.6 percent.
Underscoring the pullback in growth, a measure of national economic activity fell in June for the first time since February. The Chicago Federal Reserve Bank said its national activity index fell to minus 0.63 from a positive 0.31 in May.
A reading above zero indicates the economy is growing above trend. However, the three-month moving average indicates growth has returned very close to its historical trend, and suggests subdued inflationary pressure for the coming year, the Chicago Fed said.
