Home Sales, New Construction Slumping

Don Hogsett, June 5, 2006

The U.S. housing market continued its long-anticipated cooling off during April as sales of existing homes and housing starts both headed south for a second straight month.

Bucking the trend, at least for now, sales of costly new homes continued to climb, rising by 4.9%, following an even bigger jump of 12.0% in April. But even with the recent run-up, new home sales were still well beneath their torrid pace of a year ago, down 9.5% from March 2005. And while still gaining, new home sales represent the smallest component of housing activity, representing just 12% of activity in the housing sector.

Sales of existing homes, by far the largest piece of the housing pie, slipped for a second straight month, dipping by 2.0%. Sales of existing homes are now down about 7.3% from June of last year, and are even down slightly, by 0.3%, from their level of all of 2004.

And while sales of new homes are still going strong, builders seem to betting that it won't last for long — housing starts fell for a third straight month, diving by 7.4% in April. Indeed, with builders growing antsy about tying up their cash, and forced to offer incentives to get a deal done, starts have tumbled by 18.4% in just three months, since January.

Commenting on the outlook, David Lereah, chief economist for the National Association of Realtors, said, “Our leading indicator for pending home sales was trending lower, and our forecast model is showing a modest decline for the second quarter with sales leveling out before rising in the fourth quarter. Higher interest rates are slowing home sales, but we see this as another sign of a soft landing for the housing sector, which remains at historically high levels.”

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

Source: U.S. Department of Commerce and National Association of Realtors
Northeast -0.8% 9.1% 8.2%
Midwest -3.7 16.3 -1.1
South -1.9 -16.0 7.8
West -1.4 -9.7 2.0

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