Heritage Asset Management | Economic Commentary

Economy Notes by H. Peter Wallace, CFA

New Home Sales - June 26, 2008

Sales of new homes tumbled 2.5 percent to a 512,000 annual rate in May. April data was revised downward to a 4.8 percent gain. Expectations this month had centered on a 512,000 annual rate so the data was in line. This month’s rate is the second-lowest rate since October 1991 with March (at 501,000) being the lowest. The year-over-year change is -40.3 percent, a slight improvement from April’s -42.1 percent rate. From the peak of new home sales in July of 2005 (1,389,000) sales are now down 63.1 percent.

Inventory levels continue to decline with May inventory levels at 453,000, down 1.7 percent from April’s 461,000. Inventories are now down 16.9 percent over the past year. While the decline in inventory overhang is welcome, the slower pace of sales caused the months’ supply of homes for sale to rise to 10.9 months from 10.7 months in April.

Both the average and median sales price were lower, dropping 5.1 percent and 3.1 percent respectively. On a year-over-year basis, the average sale price is up 0.5 percent while the median price is down 5.7 percent.

Overall, the report continues to bring bad news and confirms a continuation of the housing downturn. The good news is that the level of unsold homes continues to fall (although the months supply remains more than double the average of the five years ended in 2005).

S&P Case-Shiller House Price Indices Declined in April - June 25, 2008

The S&P Case-Shiller Composite 20 House Price Index fell 1.4 percent in April following a 2.2 percent decline in March. On a year-over-year basis, the index is lower by 15.30 percent setting yet another year-over-year record low. Expectations, measured by the Bloomberg median estimate, were for a -16.0 percent rate so the data were higher than anticipated. This was interesting data in that all metropolitan areas covered now show year-over-year declines as Charlotte, the last area to show an increase, is now down 0.12 percent. Of particular note, seven of the 20 metropolitan areas actually showed gains on the month. Moreover, the rate of decline in house prices appears to be slowing: for the past two months the one-month annualized rate of decline is better than the three-month annualized rate, but of course two months are hardly enough to constitute a trend.

The Composite 10 House Price Index fell 1.60 percent in April with a year-over-year change of -16.35 percent. Again, this too is the lowest year-over-year rate since the inception of the index in January 1987. By coincidence rather than by design, the Composite 10 Index is more heavily weighted toward those areas that experienced significant price increases during the real estate boom. This index has a longer history than the Composite 20 Index. For perspective, the year-over-year high for the Composite 10 Index was 20.47 percent reached in July of 2004.

In terms of the limited areas reported, Las Vegas (-26.8 percent) and Miami (-26.7 percent) continued to report the highest year-over-year declines in home prices.

Overall, the S&P Case-Schiller Composite 20 has been down more than 10 percent on a year-over-year basis for four consecutive months. Although there are some price increases this month, and a slowing in the overall rate of price declines, prices are still significantly lower than a year ago.

Archive listing of Economy Notes
Energy Prices Pull the CPI Higher - June 13, 2008
Employment Dips Again; Unemployment Rate Rises - June 6, 2008
First Quarter GDP Revised Higher and Personal Income and Real Spending Flat in April - May 30, 2008
April New Home Sales Higher After March Sales Revised Lower - May 27, 2008
April CPI Better Than Expected - May 14, 2008
April Retail Sales - May 13, 2008
Personal Income and Spending Sluggish & Real GDP Growth 0.6 Percent in the First Quarter - May 1, 2008