Housing Zigs and Zags

Don Hogsett, June 4, 2007

The broad U.S. housing market continued its wayward, erratic trek in April, with the vast market for existing homes slipping by 2.6% even as new home sales surged unexpectedly higher and housing starts ticked up.

Sales of existing homes, which account for more than 70% of all U.S. housing activity, dipped to a seasonally adjusted level of 6.0 million units, down 2.6% from April and off a steep 10.7% from the year-ago level of 6.7 million units, the National Association of Realtors reported.

The monthly dip came as no surprise to home sellers, given the turmoil in the sub-prime lending industry that targets riskier home buyers, said Lawrence Yun, senior economist of the realtors' trade group. "We've been anticipating slower home sales because many sub-prime loan products are no longer available," he said. "In addition, increased scrutiny by lenders is stopping risky mortgage origination, which is good for both consumers and the lending community. Fortunately, a wide availability of conventional mortgage products and the 4.5 million jobs created over the past 24 months will help to stabilize the market going forward."

A big surprise, however, was an unexpected 16.2% jump in sales of pricy new homes, to a seasonally adjusted 981,000 from 844,000 the preceding month, the Commerce Department reported. That put new home sales at their highest level since a pace of 1.0 million units in December and snapped a three-month long losing streak.

Even with the steep increase, sales of new homes are off by 10.6% from their year-ago level of 1.1 million units. Making the jump look even bigger, March sales were revised downwards, and the overall pace of sales remained below the one-million mark for a fourth straight month.

In spite of the big jump, home builders remain wary, said David Seiders, chief economist of the National Association of Home Builders (NAHB). "We're viewing the large jump in new home sales for April with a lot of caution, in view of the large month-to-month volatility historically displayed by these statistics," he said.

"In addition, the April bulge may very well have reflected favorable weather swings, particularly in the South region. It also appears that the aggressive sales techniques being employed by builders are now showing some success, despite the sub-prime-related difficulties in the mortgage market."

Keeping his fingers crossed, Seiders said, "The first quarter may well have marked the low point for sales volume in the dramatic housing correction that began in the latter part of 2005. We are currently looking for a gradual recovery process going forward, at least on a quarterly basis."

Measured on a regional basis, new home sales ran a zig-zag course, up 27.8% in the South, but down 4.0% in the Midwest. Sales rose 8.5% in the West, but a more modest 3.8% in the Northeast.

Housing by Region
Month-To-Month % Change, April 2007

Source: U.S. Department of Commerce and National Association of Realtors
Northeast -8.8% 31.3% 3.8%
Midwest -0.7 -14.2 -4.0
South -1.2 -0.1 27.8
West -1.7 7.8 8.5

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