Glut of unsold new US homes at record high [and so it begins..]
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Glut of unsold new US homes at record high
by Justin Cole
Thu Jul 27, 5:30 PM ET
The glut of unsold new homes for sale across the United States hit a record high in June, the government said, and analysts warned the property market is starting to look grim.
The latest data appeared to confirm a marked slowdown in US housing, which has boomed in recent years and so helped to foster a spending spree by consumers.
However, sky-rocketing prices have deterred many potential buyers and in recent months, a steady rise in US interest rates has contributed to the market downturn.
Sales of new US homes declined three percent in June to a weaker-than-anticipated annualized rate of 1.131 million units, the Commerce Department said.
Most Wall Street economists had predicted sales to decline only to 1.164 million units.
“This was a weak report,” observed Patrick Newport, an economist at Global Insight.
“Our view remains that sales will continue to slow over the course of this year and into next, because higher interest rates and rising home prices have reduced demand by raising the price of housing,” he said.
Analysts also pointed out that the inventory of unsold new homes recorded in the report leapt to a record high last month, suggesting homes are taking much longer to sell.
The government said the stock of unsold new homes on the market rose 0.7 percent in June to a record 566,000, representing a 6.1-month supply of brand-new homes at the June sales pace.
Most of the unsold new homes are located in the south of the country, the report showed.
Apart from a slight one-month drop in the inventory in May, the stock of unsold new homes on the market has ticked up steadily over the past year.
“Many individuals who signed a (purchase) contract in what they had believed was a booming housing market may now be backing out of those contracts,” said Phillip Neuhart, an analyst at Wachovia Securities.
“Thus, the new home market is likely weaker than new home sales reflects. We expect both existing and new home sales to continue their slide throughout this year and the next,” Neuhart warned.
The report could exert fresh pressure on the Federal Reserve to pause in its cycle of rate hikes as the property market slowdown deteriorates.
The Fed has expressed concern that many new homeowners, eager not to miss out on the property boom, have taken out interest-rate-only mortgages that leave them dangerously exposed to higher borrowing costs.
Americans have also been hit by soaring fuel prices, as the signs point to a general economic downturn in the coming months.
New homes sales across the United States have fallen 11.1 percent compared with June 2005 against a background of 17 straight rate hikes which have taken the Fed’s key rate to 5.25 percent.
The median price of a new US home dropped 1.6 percent in June to 231,300 dollars from the prior month.
However, in hot urban markets such as Washington, New York and San Francisco, few apartments let alone family homes can be found at such an asking price.
The government also issued a sharp downward revision for its May figures, to show new home sales of 1.166 million compared with its initial estimate of 1.234 million.
The report followed a survey issued by the National Association of Realtors on Wednesday that showed existing home sales fell 1.3 percent in June, marking a third consecutive drop.
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