Economist's Commentary: June 25, 2008

Quick Take on the Economy: June 25, 2008

By George Ratiu, Research Economist

Research Economist George Ratiu

New home sales (NHS) fell 2.5 percent in May to 512,000 from April’s revised number. Compared to the same time a year ago, sales were 40.3 percent lower.
In the housing sector, as expected, new home sales and inventories are declining as builders continue cutting back production. The production cut-backs are necessary to trim the high inventory.
The months’ supply measure is at 10.9 months, a slight increase from April’s 10.7 months.
Regionally, for May of 2008 compared to April of 2008, NHS fell 7.9 percent in the Northeast, increased 0.4 percent in the South and 5.1 percent in the Midwest, and declined 11.6 percent in the West.

New orders for durable goods increased 0.3 percent in May, to $213.6 billion, driven by a 2.6 percent increase (to $57.3 billion) in transportation equipment.
Shipments of durable goods decreased 1.1 percent in the wake of a 1.8 percent increase in April.
Inventories of durable goods rose 0.4 percent in May to a record level of $330.4 billion. Transportation recorded the largest increase—0.9 percent to $86.3 billion.
On a yearly basis, defense capital goods and aircraft posted the largest increases in new orders—18.8 percent and 84.3 percent, respectively. The gains were offset by declines in motor vehicle orders and shipments—down 14.3 percent and 14.0 percent, respectively).

With mortgage rates rising, mortgage applications for home purchases declined 7.4 percent in the past week, from 360.2 to 333.4. Compared to a month ago, applications are lower by 5.4%
Applications for refinance fell 15 percent from the previous week.

The manufacturing sector continues to struggle with high inventories and decreased shipments; however, an uptick in new orders provides a positive sign.
In the housing sector, as expected, new home sales and inventories are declining as builders continue cutting back production. The production cut-backs are necessary to trim the high inventory.
With affordability still strong, the summer sales season may provide a boost to the housing sector and relieve the downward pressures on the economy. However, consumers are still weighed by gas prices, rising mortgage rates, and struggling overall economic conditions.

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

NAR members, learn how you can add this commentary to your Web site, blog, or newsletter. Read more >

Comments? Questions? E-mail NAR Research.