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David Goodloe
David Goodloe
Articles (769) 

New Home Sales Plunge in July

But sales remain higher than at a comparable point in 2016

August 23, 2017 | About:

New home sales continue to confound the experts.

New home sales were up in June – but not as much as economists had anticipated. Economists expected the number to be down slightly in July – but the Commerce Department reported that, instead, sales tumbled by more than 9% to a seasonally adjusted annual rate of 571,000.

That is the weakest report since December 2016 and the sharpest single-month decline in almost a year. Sales were down in the South, Northeast and West but went up in the Midwest.

Nevertheless, new home sales from January to July are 9.2% higher than they were in the comparable period in 2016, and observers were reluctant to sound alarms about the housing market at this point.

”I am not surprised to see new home sales down to a seven-month low,” said Alex Doubet, CEO of Texas-based DoorHomes.com. “The new home market is combating an ever more extreme labor shortage. Homebuilders cannot find enough labor, and a shortage on that front and the materials front is driving up costs."

“The other major headwind facing the housing market in general is that house prices have been outpacing wage growth by over 2.5 times. There is a strong argument to be made that we need some moderation in home price gains. Homebuyers need a break from the huge gains in home values in recent years so that they have a chance at purchasing a home as their wages increase.”

Observing that unemployment is at a 15-year low, wages are rising and the stock market has been setting new records, Garrett Derderian, director of Data & Reporting for New York-based Stribling & Associates, said, “Nationally, these economic numbers play well, especially in the new development space. By having more equity in the pockets of those who may be entering the market or those who may want to sell and move to a new home, there is strong demand for U.S. housing."

”However, rising costs of building materials and lack of skilled labor unexpectedly caused a rollback in single-family homebuilding in July. This, in turn, has led to a dropoff in new home sales in July. While the numbers were not as positive as one could hope, we are expecting an uptick in the coming months as the summer season comes to a close.”

Derderian pointed to another factor.

“Baby boomers are putting upward pressure on prices, as they are staying in their suburban homes longer than older generations and not downsizing,” he said. “Part of this is a result of the recession, where cash-strapped sellers have no viable options in which to relocate, and smaller apartments closer to city centers continue to see price increases. As millennials seek to enter or upgrade in the housing market, resale product remains low due to the gridlock at the upper end of the market, causing a ripple effect and pushing up prices at the entry level. This should come as a positive sign for home builders, assuming they can find the land and resources to build.”

Many but not all prominent real estate stocks saw their prices rise Wednesday. Dallas-based Texas Pacific Land Trust (NYSE:TPL) was up 1.02% by the close of trading. The Howard Hughes Corp. (NYSE:HHC), also based in Dallas, was down slightly (0.02%). Chicago-based Jones Lang LaSalle Inc. (NYSE:JLL) was up 1.12%. RE/MAX Holdings Inc. Class A (NYSE:RMAX) of Denver was up 0.08%.

Disclosure: I do not own any stocks mentioned in this article.

About the author:

David Goodloe
I'm a journalist by training. I grew up in Arkansas and earned my B.A. at the University of Arkansas. I earned my master's degree at the University of North Texas. My background includes stints at newspapers in Arkansas and Texas and teaching news writing and news editing to students at the University of Oklahoma and Richland College here in Dallas. I'm a writer/editor at GuruFocus.

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