But as you can see from the chart above new home sales were UP 30% and are now DOWN 30%. I think what we really have here is a simple and normal regression to the mean. When prices more than doubled a few years ago, no one should be surprised--or come unglued--when prices drop 20% or 30%. Hell, prices haven't come close to returning to "normal."
Well, we are certainly seeing a change in lending practice, change in use of the home as an ATM and reduction of the Family Home as an asset.
You are completely correct that the bubble was a false top. Unfortunately the CREDIT crisis is built on that false top, with folks [and banks] overextended on an extreme, not the median. That can't simply be rectified by the housing price structure balancing.
The Commerce Department said the pace of new single-family home sales fell by 0.6 percent from May to June. Sales are now 33 percent below a year ago, while prices are off 2 percent. - July 25, 2008
Falling new home sales bode ill for home builders
Friday July 25, 6:16 pm ET
By Alex Veiga, AP Business Writer
Home builders press for housing bill as new home sales data show deepening slump
LOS ANGELES (AP) -- The already battered home building industry got another dose of bad news Friday as a key bellwether of the sector's health showed sales of new homes and prices dipped in June, dashing hopes for a summertime housing turnaround.
The Commerce Department said the pace of new single-family home sales fell by 0.6 percent from May to June. Sales are now 33 percent below a year ago, while prices are off 2 percent.
"I'm surprised only that it's declined more in June over May," said Tim Eller, chief executive Centex Corp. in Dallas. "The markets are continuing to deteriorate and I think that's an illustration of that fact."
The company is expected to report a quarterly loss of $1.10 a share on Tuesday, according analysts surveyed by Thomson Financial. Earlier this week, Pulte Homes Inc. also reported a loss for its second quarter.
The home sales report, however, had a small silver lining: The inventory of new homes for sale declined to a 10-month supply at the current sales pace, down from a peak of 11.2 months in March.
Historically, new homes cost about five percent more than preowned homes, but aggressive discounting and incentives by builders during the housing downturn has closed that gap in many markets. That's good for buyers but bad for builders' margins.
"Drastic reductions in builder supply are starting to have a meaningful impact on inventory levels," concluded Brian Bethune, an economist at Global Insight.
Still, that did little to encourage to renew optimism about improving fortunes for homebuilders in months to come.
"I tend to think we're going to see more of the same," said Robert Curran, an analyst with Fitch Ratings.
The National Association of Home Builders seized on the lackluster report to underscore its calls for lawmakers to support a housing stimulus bill passed by the House on Wednesday would provide a tax break for first-time home buyers and aims to help distressed homeowners avoid foreclosure.
And Eller, whose company lost $2.66 billion last year, said the legislation is needed to help stimulate demand and stabilize the housing sector.
"It's not going to be a silver bullet, but it does help," he said.
One element of the bill that home builders are keen on is a tax credit of up to $7,500 for first-time buyers, an incentive which ends up translating into an interest-free loan payable over 15 years.
Eller said he took advantage of a similar incentive -- a $5,000 tax credit -- when he bought his first home in 1974.
"We specialize in first-time home buyers, so this tax credit, should it pass, would be beneficial for our company," said Eller.
While the tax credit may get some reluctant buyers off the fence, the stimulus bill won't rescue the industry on its own, Curran said.
"It's probably not going to have a big impact on the housing scene in total, especially new home sales," Curran said.
Bethune expects the housing bill will pass and provide some support for the market, but not for at least six to eight weeks.
"In the meantime, the situation in the housing and mortgage markets remains extremely fragile," Bethune wrote in a research note.
For all the potential positives in the bill, the housing market remains snared in a negative cycle of falling prices and rising foreclosures.
Lenders have tightened lending guidelines so they can sell their loans to Fannie Mae and Freddie Mac, making it harder for buyers and distressed homeowners to get loans or refinance.
Complicating matters further is the specter of rising interest rates.
The average rate of a 30-year, fixed-rate mortgage has been fluctuating higher since falling to a low of 5.48 percent in January. This week it hit 6.63 percent, the highest level this year, according to mortgage company Freddie Mac.
The downward spiral in home prices, however, remains the biggest hurdle for home builders.
New home prices have fallen below those of existing homes in many areas this year, Curran said.
Still, as foreclosures have piled up, the rate of price declines for existing homes has also accelerated.
On Thursday, the National Association of Realtors reported that the median price of existing homes sold in June fell to $215,100, down about 6 percent from a year ago.
For now, builders, many of which don't have much room to cut prices further, are hoping the housing legislation will make a difference.
Eller wonders how much stability the housing bill will bring to the market. "I think that's the real issue."
Falling new home sales bode ill for home builders: Financial News - Yahoo! Finance