TBO.com - TBO is Tampa Bay Online

Drop In New Home Sales Dims Optimism For Rebound

ADVERTISEMENT

The Associated Press

Published: July 26, 2008

LOS ANGELES - The battered home-building industry got another dose of bad news Friday as a key bellwether of the sector's health showed new home sales 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 0.6 percent from May to June. Sales are now 33 percent below a year ago, and prices are off 2 percent.

"I'm surprised only that it's declined more in June over May," said Tim Eller, chief executive of homebuilder 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 to analysts surveyed by Thomson Financial. Earlier this week, Bloomfield Hills, Mich.-based Pulte Homes 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 5 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 optimism about homebuilders' fortunes improving 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 Wednesday by the House. The measure would provide a tax break for first-time homebuyers and aims to help distressed homeowners avoid foreclosure.

Eller, whose company lost $2.66 billion last year, also 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 homebuilders are keen on is a tax credit of up to $7,500 for first-time buyers, an incentive that 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," he said.

Although 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 to 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 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 moving higher since falling to a low of 5.48 percent in January. This week it reached 6.63 percent, the highest this year, Freddie Mac reported.

The downward spiral in home prices, however, remains the biggest hurdle for homebuilders.

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.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT