Mixed month produces new-home sales spike

Don Hogsett, July 8, 2002

The key U.S. housing market — a crucial barometer of home fashions sales — turned in a mixed performance in May. The vast market for existing homes dipped slightly, even as sales of costly new homes climbed sharply higher and developers bet the farm that the future remains rosy, sending housing starts up at a double-digit pace.

Sales of existing homes, by far the largest slice of the housing pie, trailed off slightly in May, skidding by 0.3 percent, to a seasonally adjusted level of 5.75 million homes, continuing the seesaw pattern of monthly ups and downs that has prevailed over the past year. The June dip followed a steep revised April gain of 6.7 percent.

Despite the month-to-month volatility, the big market for resales, often lower-price starter homes, has remained at historically strong levels, points out David Lereah, chief economist of the National Association of Realtors. "So far this year, we've recorded the four highest monthly sales rates on record for existing home sales."

But looking ahead, home sales are expected to lose some ground, Lereah added. "Going forward, the trend should be a gradual decline in home sales activity, but they'll stay above last year's record."

Sales of existing homes were off in two of the nation's four regions, gaining in the West and Midwest, up 4.5 percent and 1.6 percent, respectively. Declines were posted in the South, off by 3.9 percent, and the Northeast, down by 2.9 percent.

Following declines in March and April, housing starts rebounded in May, surging by 11.6 percent, the Commerce Department reported. Gains were recorded for both single-family and multi-family units. "It's good to see that the housing market is back up to its first-quarter pace after some slippage in March and April — the 'payback months' following unusually good weather conditions which spurred exceptionally strong production in the first part of the year," said Gary Garczynski, president of the National Association of Home Builders.

Housing permits, a gauge of future building activity, also rose in May, climbing by 2.6 percent.

Sales of new homes, a highly volatile market subject to frequent and steep monthly revision, jumped up by 8.1 percent to a record high seasonally adjusted annual rate of 1.03 million units, the Commerce Department reported. Sales of new homes rose in every region of the nation during May. Rebounding from a previous dip, the Northeast posted the biggest gain, jumping up by 26.4 percent, followed by a big 10.6 percent increase in the South. The West and Midwestern states posted more moderate gains of 4.3 percent and 2.7 percent, respectively.

Housing by region
Month-to-month % change

Existing home sales Housing starts New home sales
Northeast -2.9% +22.4% +26.4%
Midwest +1.6 +24.0 +2.7
South -3.9 +6.0 +10.6
West +4.5 +10.0 +4.3

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