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New Home Sales Lose Momentum in August

September 25th, 2009

New home sales, after four months of robust gains, only inched up 0.7% in August, the Commerce Department reported Sept. 25.

The government's monthly new home sales report, which has a wide margin of error, is relatively unreliable. But it follows disappointing results for existing home sales and housing starts.

Existing home sales dropped 2.7% in August on a seasonally-adjusted basis -- the first decline in five months, the National Association of Realtors reported Sept. 24. And single-family home housing starts dropped 3% in August from the previous month when adjusted for seasonal variations.

Patrick Newport, and economist with IHS Global Insight, said it's not clear why sales wouldn't increase more, especially with the $8,000 federal tax credit for first-time buyers set to expire at the end of November. Buyers should be rushing to take advantage of the incentive before it vanishes (Some of them, of course, might be aware that Congress is mulling over the idea of extending and even expanding the credit to include all buyers).

"Three independent sources [new home sales, housing starts, and existing home sales reports] are telling us the market weakened in August," said Patrick Newport, an economist with IHS Global Insight. "I'm just not sure what is happening."

But Zach Pandl, an economist at Nomura Securities, isn't concerned about monthly fluctuations. He expects the last-minute rush of buyers using the tax credit to boost sales in September.

The good news is that inventories of unsold new and existing homes continued to drop in August, Pandle said.

"Overall, I don't think much has changed here," said Pandl, who says the housing market is now strong enough to stabilize even without the $8,000 credit. "It's unreasonable to expect a smooth upward march. It's going to be a choppy, challenging recovery."

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