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Daily Global Commentary

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Sales of new single−family homes in August fell 9.9% to an annual rate of 1.237 million units

Mon, Nov 27 2006, 13:14 GMT
by Asha Bangalore

Northern Trust

Supply of Unsold New Homes Should Cause Concern

Sales of new single-family homes in August fell 9.9% to an annual rate of 1.237 million units. Sales of new homes dropped 22.0%, 17.9%, 10.6%, and 2.2% in the Northeast, West, Midwest, and South, respectively.

The decline in sales of new homes took the inventory of unsold homes to a 4.7-month supply in August up from a 4.1-month reading in July. The August inventory is the highest since June 2000 when there was a 4.8-month inventory of unsold new homes in the market. Yesterday’s report on existing homes also included an increase in the inventory of unsold existing homes.

The median price of a new single-family home increased 2.5% to $220,300 in August after three consecutive monthly declines. On a year-to-year basis, the median price rose only 1.0% in August, which represents a notable decline after 6.0%-9.0% gains in the first five months of the year and a 13.8% increase in 2004.

Consumer Confidence Plunges In September

The Conference Board’s Consumer Confidence Index fell 18.9 points to 86.6 in September, the lowest reading since October 2003. The 18.9 point decline of the Consumer Confidence Index is the largest since the 23.0 point drop in October 1990. Hurricane Katrina, the large hikes in energy prices, and the Iraq were contributing factors, with the hurricane being the most influential force behind the decline in consumer confidence. The University of Michigan Consumer Sentiment Index also has shown a similar noticeable decline in September.

In September, the Jobs-plentiful index fell 3.5 points to 20.1, the lowest since December. The Jobs-hard-to-get index rose 2.3 points to 25.4, the highest since December.

Consumer confidence has declined, prices of new homes show a significant moderation on a year-to-year basis, and the inventory of unsold new and existing homes are creeping up. The Hurricanes have caused an enormous disruption of economic activity and higher energy prices will be reflected in prices of non-energy goods and services soon. This combination of higher prices and slower economic growth should keep the Fed extra vigilant with the inflation battle gaining more importance in the near term.

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Published on  Mon, Nov 27 2006, 13:23 GMT