Sales of new homes fell 3.6 percent to an annual pace of 402,000 units.  In addition, the previous  three months saw a net revision of -26,000 units.  Weakness has clearly reappeared but we are still off the first half lows.  

• The 3.6 percent drop is the most since March.  Still, we are well off of the lows set in the first quarter.
• The looming new home-buyer tax credit expiration at the end of November is likely responsible for at least some of the drop.  Since new home sales represent contract signings,the lead time required to close before the deadline is significant even if the home is already completed.
• Inventory levels continue to improve and have reached levels not seen since the early 1980′s with just 251,000 units on the market.  With a relatively low amount of new building in the pipeline, inventory levels will likely remain tight.  (Historical average is around 300,000 units for sale)
• Prices moved higher, likely reflecting a change in the compostion of sales.  As new home-buyer tax credit eligible sales dry-up, the excess low end transactions will fall out of the data.

Keep an eye on the existing new homes for sale number.   Go back and read my blog of July 29, 2008… it was noted then that in July 2006 it was 572,000 homes.

Source:  U.S. Department of Commerce and Wells Fargo Securities, LLC