Sales of newly built homes fell hard in June, despite newfound optimism in the housing recovery, especially among the home builders themselves.
Signed contracts to buy new homes fell 8.4% from the previous month, according to the U.S. Commerce Department, although they are still up 15% from a year ago.
Sales levels are now at their lowest since January.
This is the second miss for housing in the same month. Sales of existing homes fell as well, despite expectations for a gain.
The biggest drop in new home sales came in the Northeast, down 60% month-to-month, but the Northeast represents the smallest sample and is therefore highly volatile. In May it was that same segment of the country that pushed new home sales higher. The biggest June gains were seen in the Midwest, with a slight gain out West, where dwindling supplies of foreclosed homes have removed some of the competition for the home builders.
“With new home sales at current levels 75% below peak and with a run rate near 50+ year lows, new home construction has bottomed, but there is still a long bridge between a bottom and a robust recovery, as existing home inventories (shadow and otherwise) remain elevated,” writes Peter Boockvar, an analyst at Miller Tabak.
These latest numbers fly in the face of rising home builder optimism and a huge run on the stocks of the public builders. Some analysts, however, have been warning that this recovery is fragile at best, given other factors in the economy, specifically lackluster job growth and poor consumer sentiment.
“Builder stocks have continued to outperform the market as demand has remained strong into summer; also, earnings and the next few macro data points should be positive,” wrote analysts at Deutsche Bank earlier this week. “However, we think downside tail risk is mounting for 2H12. It shouldn’t take more than muddle-through economic growth for housing recovery to continue, but the risks are that even that doesn’t happen or it happens unevenly against tenuous investor optimism.”
Several home builders reported big jumps in new orders this spring, but those orders did not translate into pricing power for the market. Prices of new homes fell 3.2% in June after several months of gains.
Single family housing starts rose 4.7% in June from the previous month to a four year high, but they are still running at about one third the historical average volume. Inventories of new homes for sale rose to 144,000, representing a 4.9 month supply, but that is still historically very low.