Housing Indicators Stalling Out

Don Hogsett, October 2, 2006

After losing momentum over the past several months, the U.S. housing market showed some signs of bottoming out during August, with sales of existing homes holding relatively steady and new home sales posting an unexpected gain, even as builders slammed on the brakes and housing starts continued to slide.

The bright spot in the August picture, sort of, was the 4.1% climb in new home sales, the first increase in five months. But the news wasn't as good as it seemed, nor the increase what it appears, since the August gain was inflated when July sales were revised down substantially, by 35,000 units. Had July numbers not been taken down, August would have shown a further drop of 2.1%.

That further intensified the jitters of already skittish home builders, who continued to take a wait-and-see attitude in August, driving housing starts down a steep 6.0%. Reluctant to pony up the cash to start building houses that people may or may not buy, starts have now plummeted by 26.5% to 1.7 million units on a seasonally adjusted basis from a 13-month high of 2.3 million in February.

Sales of existing homes, which account for more than two-thirds of all housing activity, leveled off somewhat during August, slipping just 0.5% following a stepper than expected 4.1% decline in July. “The fairly even sales numbers in August tell us the market is at a more sustainable pace,” said David Lereah, chief economist of the National Association of Realtors. He said home prices are likely to further decline for several months more “as we work through a buildup in the inventory of homes on the market.”

The national median existing-home price for all housing types was $225,000 in August, down 1.7% from a year ago when the median price was $229,000.

Lereah added, “This is the price correction we've been expecting — with sales stabilizing, we should go back to positive price growth early next year.”

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

Source: U.S. Department of Commerce and National Association of Realtors
Northeast 1.9% 5.4% 21.7%
Midwest 0.7 -12.2 12.2
South -0.8 -6.1 11.1
West -2.3 -5.5 -17.7

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