Economist's Commentary: July 25, 2008

Quick Take on the Economy: July 25, 2008

By Lawrence Yun, NAR Chief Economist

Newly built home sales continued to sag. In June 530,000 new homes were sold on a seasonally adjusted annualized rate, down from 533,000 in the prior month, down from 793,000 one year ago, and down from 1.2 million in 2005.
Inventory of new homes on the market fell to 426,000, the lowest level since 2004. However, due to the low sales pace, the months supply continue to remain elevated at 10.0 months.
Builders will need to continue to cut back production in order to work down not only new home inventory but also existing home inventory. I anticipate further declines in new construction and new home sales deep into 2009. Existing homes, meanwhile, will likely rise in upcoming months due to the first-time homebuyer tax credit that will go into effect very soon.

The orders for durable goods rose 0.7 percent in May. From a year ago, orders are up 5.1 percent.
Despite the soft economy, orders for manufactured products are rising solidly.

The reading of consumer sentiment according to University of Michigan survey rose in July. The index rose from 56.4 to 61.2.
The increase in sentiment is somewhat surprising given no major improvement to the economy.

The new home market is suffering badly. The builders will need to cut back production further, so a turnaround in the new home market will only take place in mid-2009.
Business spending or export orders or a combination of the two are occurring as evidenced by rising durable goods orders. The economy is expanding.

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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