Economist's Commentary: May 27, 2008

Quick Take on the Economy: May 27, 2008

By Lawrence Yun, NAR Chief Economist

New home sales continue to remain very weak despite the mild increase in April. Today’s data showing a 3 percent monthly increase to 526,000 is off by 60% from the 2005 peak levels.
The decline in newly constructed sales should be anticipated for the remainder of the year just from the drastic reduction in new home building. There are simply very few new homes reaching the market. The broader existing home sales have been fairly stable for the past eight months.
The inventory of new homes fell again – as has been the consistent trend for most of the past two years when builders have cut back production. The current inventory of 456,000 new homes on the market is now at the lowest point in nearly three years. Read more.
The median new home price was higher than a year ago. But this reflects a changing mix of home sales and does not mean broad gains in homeowner’s equity.

Consumer confidence fell for the fifth straight months in May according to the Conference Board’s measurement. The confidence index has been cut in half from a year ago. It is at a lowest point since the early 1990s.
Both the present situation assessment and the future expectations fell. But the expectation about the future has been consistently been lower than present views over the past year.

Home prices fell sharply according to this volatile and narrow home price index. Because the Case-Shiller data picks up many distressed home sales related to the subprime mortgage fallout, the price declines reflect significant declines in neighborhoods with large subprime loan exposure, though not in neighborhoods with little subprime loan exposure.
The OFHEO government home price index, which has little subprime loan coverage, earlier reported a much milder price decline. NAR price data has been between these two extreme measures.
The Case-Shiller price data has a very long lag time and today’s data reflects what happened in March.

It is more important than ever to look at neighborhood characteristics. Even within a local market there are significant price trend differences among neighborhoods.
Consumer pessimism is becoming ever more pervasive. Consumer spending growth may contract in the current quarter before some lift in the next quarter as tax rebate checks begin to kick in.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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