New home sales increased in June 2010 to an annual pace of 330,000, a 24 percent increase from May, when new home sales cratered to the second-lowest pace since 1963.
The cratering of new home sales can be attributed to a hangover effect from the first time home buyer tax credit, among other things. The credit appears to have accelerated home sales from the summer and fall into the spring. Upon the expiration of the bill, home sales promptly cratered, raising questions about the wisdom and value of the tax credit.
Almost simultaneously, mortgage rates hit all time lows, as scared investors fled the stock market for the bond market, causing yield spreads on treasury debt to collapse, pulling down mortgages rates in the process. Low mortgage rates may have compelled some hesitant buyers to make the plunge into homeownership.
Despite the uptick in demand, the massive overhang of housing industry is putting downward pressure on home prices, which in turn robs homeowners of equity and may be causing a spiral that some believe will result in further declines in the housing market. We will learn more about what is happening regarding home prices when the Case-Shiller home price index comes out later this week.
Some are saying this report indicates that the downturn caused by the expiring tax credit is over. Still others point out that this is the worst June for new home sales on record. I’m more inclined to agree with the bears than the bulls, and I think this report reflects hugely volatile market conditions more than anything else. What do you think? Let us know in the comments section below.
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