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New Home Sales Post a Sharp Decline in November
Wed, Dec 23 2009, 23:22 GMT
Sales of new single-family homes fell 11.3% to an annual of 355,000 in November, the lowest level since April 2009. Sales of new single-family homes have declined in three out of the last six months. The first-time home buyer tax credit was originally expected to expire in November 2009. This may have partly influenced the recent trend of home purchases. However, the program has been extended to April 2009, which seems to have spurred purchases of existing homes but not new homes. Sales of new single-family homes fell 7.4% from a year ago.
Sales of new single-family homes fell in the South (-21.1%), Northeast (-3.3%), and West (-9.2%) but advanced in the Midwest (+21.4%). The median price of a new single-family home rose 3.8% to $217,400 in November vs. the October reading. The median price declined 1.9% from a year ago. New home prices are stabilizing from a year ago readings (see chart 2).
The inventory of unsold new single-family homes moved up slightly to a 7.9-month supply from 7.2 months in October. The median inventory/sales ratio of new single-family homes is a 6.0 month supply.
Historically, sales of new and existing single-family homes are strongly correlated (see chart 4). However, in the last three months, sales of new homes have risen only in one month while that of existing homes have advanced in each to the three months ended November (see chart 5).
Sales of homes in recent months are made up of distressed properties sold for cash and other homes which carry a mortgage. According to the National Association of Realtors, distressed properties accounted for about 30% of all existing home sales in the August-November period. During this three-month period, the Mortgage Purchase Index of the Mortgage Bankers Association (see chart 6) declined in two months.
The extension of the first-time home buyer tax credit could play a role in the months ahead in the new home sales market also. In sum, the relative benefits of low mortgage rates and attractive home prices appear to be smaller in comparison with the first-time home buyer tax credit program.
Income, Spending, and Saving Moved Ahead in November
Personal consumption expenditures, after adjusting for inflation, increased 0.2% in November after a 0.4% gain in the prior month. Expenditures of durables (+1.2%) and non-durables (+0.6%) advanced in November, while that of services slipped 0.1%. From a year ago, consumption spending has risen in three out of the last four months (see chart 7). Purchases of autos registered gains in October and November, with projections for December indicative of a small gain. Despite this pickup, auto sales in the fourth quarter are most likely to show a decline because the extra lift from the clash-for-clunkers program is missing in the fourth quarter. As a result of this, consumer spending in the fourth quarter will be positive but lower than the 2.8% increase seen in the third quarter.
Personal income rose 0.4% in November vs. 0.3% increase in October. Personal saving as a percent of disposable income was 4.7% in November, matching the reading of the prior month. The household saving rate has averaged 4.6% in the first eleven months of the year, after posting readings of 2.6% in 2008 and 1.7% in 2007. The upward trend of household saving is a big plus for the long-term economic health of the U.S. economy.
The overall personal consumption expenditure price index increased 0.2% and the core personal consumption expenditure price index, which excludes food and energy, held steady in November. From a year ago, both price indexes moved up in November (see chart 9). However, soft final demand for goods and services should keep inflation contained in the quarters ahead.