Housing Stats Show Consumer Concern

Don Hogsett, July 3, 2006

Confounding expectations and still alive and kicking, the nation's broad housing market, at least the newest part of it, continued to expand during May as consumers continued to buy brand new houses, and builders still put hammer to nail.

The one segment that did pull back, however, was the largest: existing home sales, which caters largely to price-sensitive entry-level home buyers, the ones most spooked by rising interest rates. There, sales trailed off by 1.2% on a seasonally adjusted basis, to 6.7 million units from 6.8 million the month before, continuing a long downward run.

Sales of existing homes have now fallen by 8.3% from a 13-month high of 7.3 million units recorded in June 2005.

David Lereah, chief economist of the National Association of Home Builders, said conditions are mixed around the country. “There's now a clear pattern of slower home-sales activity in many higher-cost markets, which are more sensitive to rises in interest rates, and higher home sales in moderately priced areas which have experienced job growth. Although mortgage interest rates remain historically low, the uptrend in interest rates this year is affecting those buyers who are at the margins of affordability.”

And in the smaller housing segments that attract more affluent buyers, reading the tea leaves is getting tricky. Take sales of new homes, which unexpectedly rose a strong 4.6% in March. Sounds good, but when you start to pick the numbers apart, the gain was largely in multi-unit construction — townhouses, apartments and condominiums — while single-family homes sold at a sharply slower pace.

Indeed, sales of new housing structures with five or more units soared by 25.4% during May, while single-family homes, the beating heart of the housing market, grew at a more subdued pace of 2.1%.

Looked at another way, against last year's numbers, May's big gain doesn't look so big. Indeed, year-over-year sales of new homes are down by 3.8%. Sales of single-family homes are down twice as far, by 7.6%, while sales of buildings with five or more units jumped up by 14.6%, pointing to a swing toward more affordable housing going up as interest rates rice and consumers still confront a tricky job market and an uncertain economy.

Housing By Region
Month-To-Month % Change, May 2006

Source: U.S. Department of Commerce and National Association of Realtors
Northeast -4.2% 1.7% -7.9%
Midwest -3.8 -15.8 2.7
South 0.4 8.5 6.0
West 0.7 15.8 5.3

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