New home sales fall further
Government reading is latest sign of slowing real estate market.
NEW YORK (CNNMoney.com) -- The government's latest reading of a cooling real estate market came in weaker than Wall Street expectations Thursday, with the sale of new homes down and the supply of new homes on the market continuing to climb to record levels.
New home sales came in at an annual rate of 1,131,000, according to a Census Bureau report. That's down from the 1,166,000 pace in May, which was revised lower in the latest report. The figure was off 11 percent from the year-earlier figure.
Economists surveyed by Briefing.com had forecast a 1,164,000 pace in June, which would have been down from the original May reading.
"That 11 percent drop is one of the bigger declines we've seen in the government survey," said John Tomlinson, an analyst who follows home builders' stocks for Majestic Research. And he believes that the true market could be weaker than the government report suggests, due to rising cancellations of new home purchase by buyers, which is not reflected in the number.
The report showed 566,000 homes for sale at the end of the period, a record supply in the report. Some of those homes were under construction or not yet even started. However, the supply of completed homes available for sale climbed to a record 132,000 in the report.
While the numbers represented only a modest increase in supply from the May figures, both represented a dramatic jump from year-earlier levels - a 24 percent increase in total new homes available for sale, and a 28 percent gain in completed homes for sales.
"This inventory build has been unwelcome, and our hope is that many of the 113,000 homes in inventory, which have yet to be started, won't be started anytime soon," wrote Phillip Neuhart, a Wachovia economist, in a note about the report Thursday. "Builders' sentiment, as measured by the National Association of Home Builders, is at surprising lows, which hopefully indicates some builders will slow the supply they are putting on the market."
The supply of homes helped to take both the average and the median price down in June by 1.6 percent. The average price now stands at $290,600. The median, which is the point at which half the homes cost more and half cost less, is $235,000.
While price measures are narrowly higher than year-earlier readings, the drop in June is even more pronounced from the record levels set as recently as April, with the median down nearly 9 percent and average price is off 6 percent.
Weaker than it appears
Many home builders are reportedly offering incentives such as covering closing costs, so there is likely to be more weakness in pricing than even these numbers suggest.
Anthony Chan, chief economist with JPMorgan Private Client Services, said that with the continued climb in inventory level, there will be more downward pressure on prices ahead. But he said the reading shows only "a gradual erosion in housing market conditions from the booming environment observed over a year ago."
Tomlinson estimates that 14 percent of new home sales were canceled in May, up from only 4.4 percent of sales being canceled a year earlier. He said that when the cancellations are taken into account, the drop in net new home sales was close to 30 percent in May compared to a year earlier, and quite likely worse in June, for which cancellation data is not yet available.
Some larger publicly traded home builders have been warning of a weakening market for a number of months. Earlier this month, D.R. Horton (Charts), the No. 1 home builder in terms of homes sold, cut its forecast amid a sharp drop in orders and lowered its profit guidance for the year.
"After several years of limited house inventory and robust demand, the supply of homes for sale continues to increase, while greater buyer uncertainty about purchasing a home at this time is being further impacted by their inability to sell existing homes and the effect higher prices and interest rates are having on overall affordability," the company said in its statement.