Analysts reacted to the July new home sales decline Tuesday with dread, saying the housing market has years of stalled recovery ahead.
The Commerce Department reported the seasonally adjusted rate of new home sales in July declined 6.8% from one year ago, coming in below analyst expectations. Sales slumped back below the 300,000 market and sit not too far from the low of 278,000 units in August 2010."Sales of new homes are going nowhere fast," said Celia Chen, senior director at Moody's Analytics. "An economy hampered by political wrangling over the budget deficit and the sovereign debt crisis in the euro zone is weighing on job growth and consumer confidence. Demand for homes remains very soft despite mortgage interest rates that are falling to new lows."
New home sales have to compete with a flood of distressed and previously foreclosed properties. The Commerce Department estimates roughly 165,000 new homes for sale on the market, roughly equal to a 6.6-month supply. However, the shadow inventory of distressed property ranges as high as 4.5 million properties, according to the Mortgage Bankers Association.
Standard & Poor's recently said the market would need 44 months to work through the shadow inventory supply.
Chen said job creation will remain weak for the rest of the year, keeping new home sales at this bottom lull before picking up in 2012.
"To be sure, new-home demand still faces many obstacles, and the risks to this outlook are decidedly on the downside," Chen said.
Paul Dales, a senior economist at Capital Economics, said the July figures are actually worse than they look. Taking into account the 3.5% drop in existing home sales in July, reported by the National Association of Realtors, the annualized rate of home sales dropped to 4.98 million in June.
Link Here"Home sales are no higher than three years ago and a new downward trend now appears to be in place," according to Dales. "Even if the economy were to avoid another recession, a prolonged period of weak economic growth will mean that there will be no real recovery in home sales for a few years yet."