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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

June New Home Sales Surge, But Don't Get Excited

New home sales in June jumped by the biggest percentage since December 2000, according to data released moments ago by the Commerce Department.

Sales of new homes went up 11 percent in June compared with May, to a seasonally adjusted rate of 384,000. This is the strongest rate December 2000.

That sounds like good news, if you just take it on its face. But if you dig a little deeper into the data, you get a grimmer picture.

Why have new home sales surged and prices risen for three straight months?

Because, in June, the median sale price of of a new home was $206,200, down a whopping 12 percent from $234,300 in June of last year.

This means that investors and "speculators" (a pejorative term for investors) are snapping up new homes -- many that have sat empty for months on the cheap, as mortgage rates stay low (5.55 percent).

So this is not you or me deciding, "Hey, I think the economy looks like it's getting better and I'm ready to jump into the biggest expense and obligation of my lifetime," which is what buying a home is. And which would be a true sign that the economy is improving.

Instead, it's investors saying, "Good time to buy cheap and hold onto until the market rebounds and I can resell." This is a valid and necessary component of the housing industry, but not the one that will defibrillate it back to health.

-- Frank Ahrens
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By Frank Ahrens  |  July 27, 2009; 10:44 AM ET
Categories:  The Ticker  | Tags: Commerce Department, home sales, new home sales  
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Comments

When you wrote "don't get excited", I got concerned, but not any more. Investors/speculators are the best way to clear inventory (esp compared to any more government [ie TAXPAYER] support) - bad thing is if they drive up home prices like speculators artificially drive up gas prices, but I don't think this will happen. This also motivates "normal" buyers to start looking/make a move if they want to purchase. Worst thing is few can qualify now (20% down, good job history/future, using actual income, etc), but I hope banks will go back to 10% down when jobs are more stable (going from "0% down, 110% LTV financing, stated income" to current qualification is overkill, but is better for securing the debt - and forces buyers not to overbuy). Anything that helps clear inventory is good - that will drive up prices for refi's too (increase value of houses where there are too many vacancies). Not out of woods, but it's better when downspin stops.

Posted by: chris76543 | July 27, 2009 12:46 PM | Report abuse

Ah - I was wrong - this is about NEW homes. I'm surprised if many investors are buying new homes, but it may be as you say - that they'll hold on to them until prices go up, but it's really not a new home at that point. Interesting is new homes now are cheaper than new homes a couple/few years ago (which may be upside down in the foreclosure market now), so there may be room to make a profit. Still, it signals a plateau/bottom and that is good news. The worst would be if these are bogus numbers created by builders buying/holding their own homes.... I always question the numbers.

Posted by: chris76543 | July 27, 2009 1:15 PM | Report abuse

Aside from other comments posted already, doesn't this increase in new sales just the shadow of 3-4 months earlier when march pending sales rose, isn't it only natural that those houses are now complete and being sold under the contracts generated back in march. Sounds like false optimism to me either intentionally or unintentionally misleading people. Bet a significant portion of these new sales are either completed pending sales from earlier or like others have mentioned from investors. What percentage is actually end-buyers of new constructed homes built w/out contract? I can bet contractors have greatly reduced their building w/out a pending contract. Yet it is a good thing if buyers signing those contracts are fulfilling them and getting into their homes (wonder what the fulfillment % was). To me this report at best provides nothing new only false optimism. Show me the numbers behind the numbers and prove whether June results is worthwhile excluding March's shadow.

Posted by: liteatnight | July 27, 2009 2:15 PM | Report abuse

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