The Gardner Group Blog

By Alan Zibel, Alex Veiga
ASSOCIATED PRESS
Tuesday, July 28, 2009

WASHINGTON - New home sales rose last month at the fastest clip in more than eight years as buyers eagerly took advantage of bargain prices - a clear sign, economists said, that the real estate market may finally be bouncing back.

Historically low interest rates and a federal tax credit for first-time homeowners also helped push home sales to their highest level since November, the Commerce Department reported Monday.

While home prices are still falling around the country, sales have now risen for three months in a row. Construction of homes is at the busiest level since last fall. And home resales rose in June for the third straight month.

"The worst of the housing recession is now behind us," said David Resler, chief economist at Nomura Securities.

But as with the overall economy, he said the recovery is likely to be slow and arduous.

Put in perspective, the improvement in sales is modest. The pace of sales for new homes in June was still 72 percent below the peak of four summers ago, and an enormous inventory of homes is still on the market.

"There's been signs of improvement, but we're a long ways off from being back to a normal market," said Corey Barton, president of CBH Homes in Meridian, Idaho. Sales there were up in June, but Barton said, "It wasn't our biggest jump in eight years."

But there were clear signs the housing market is showing more life than at any point since the recession began.

Keystone Custom Homes of Lancaster, Pa., which was founded in 1992, had its best June ever. July looks good, and president Larry Wisdom expects an even stronger August.

"We doubled our sales in May, and then in June it took off," he said.

New home sales for June came in at a seasonally adjusted annual rate of 384,000, blowing past the expectations of economists surveyed by Thomson Reuters, who were looking for 360,000.

The figure is up 11 percent from May, and May's number of 346,000 was higher than previously thought. The increase is the largest since December 2000, when investors scarred by the tech-stock bubble were looking for more stable places to put their money.

Sales were strongest in the Midwest, where they jumped 43 percent from May. Sales climbed 29 percent in the Northeast and 23 percent in the West. They declined slightly in the South.

The median sales price was $206,200, down from $234,300 a year and $219,000 in May. Economists expect home prices to fall until the competition from low-priced foreclosures ebbs sometime next year.

To drum up sales, CBH Homes has slashed prices up to 10 percent from last year's levels. The homes CBH builds have to compete with the glut of foreclosures, which are drawing many first-time homebuyers.

In addition to lower prices, buyers are rushing to take advantage of a federal tax credit that covers 10 percent of the home price or up to $8,000 for first-time buyers. The closing must occur by Dec. 1 for buyers to take advantage.

"There's definitely more first-time homebuyers in the market than what we've seen in the last several years," Barton said.

Fallout from the housing crisis played a central role in the U.S. recession, the longest since World War II. Mortgages went bad, homebuilders pulled back and fired thousands of workers, foreclosures spiked, and lenders were shuttered by the dozen.

Although the real estate market appears to be starting a recovery, that doesn't mean it will instantly become an economic engine. Construction is weak because builders have too many unsold homes.

At the current pace, the new homes for sale would last nearly nine months. That's slightly less time than in May but still much longer than the six-month mark that indicates a balanced market.

New-home starts in the second quarter were 53 percent higher than in the first quarter.

Because builders have pulled back in the past year, there is only a three-month supply of new homes on the market.

The shortage of new homes has led to a pickup in the resale market, which had its best month in a year in June.

From http://www.statesman.com/search/content/news/stories/nation/2009/07/28/0728econ.html