New Homes Sales Stuck in Recession?

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New Homes Sales Stuck in Recession?
| published July 24, 2014 |

By Thursday Review staff

Despite lots of signs that the U.S. economy is making a slow but stumbling comeback from deep recession, there are occasional setbacks. It’s a case of two-steps-forward, one-and-a-half-steps-backward.

Even as automotive sales have seen a surge since the end of winter—a spike which has benefitted almost all car-makers, including troubled General Motors—middle-tier retailers are struggling to keep customers coming into the stores. J.C. Penney, Kohl’s, and Sears have all seen profits decline, and have watched as their traditional customers migrate toward the heavy discount stores, or toward online sales. Jobs numbers have improved, but many economists worry that the jobs being created are low-pay, and many of the new positions carry no benefits.

Home sales and home construction—both of which were adversely affected by a record-breaking cold winter—finally saw some growth in early spring, but now, according to a new report from the U.S. Department of Commerce, sales of new homes fell by 8.1 percent in June, the biggest decline since last summer.

Through most of 2013, signs pointed toward a full recovery in real estate and housing—the sectors most deeply impacted by the Great Recession. Last year’s growth has been seen as a sign that the United States was finally finding its way out of the lingering effects of the recession. But sales stalled in late December and early January, in large part because of the widespread effects of Polar Vortex. Sales of both pre-owned homes and new homes fell dramatically, and new construction came to a halt. Though the spring thaw brought some new activity, economists noted that interest rates and stingy lenders were still inhibiting sales, even in markets where buyers and sellers were in general agreement on price.

The Commerce Department also noted that home sales were lower in May than the agency’s original forecasts.

The biggest drop in new home sales was in the northeast, where sales fell roughly 20 percent. Sales in the South fell at the lowest rate. New home inventory rose to 5.8 months (the metric used to factor how long it takes on average for a newly completed home to sell), the longest inventory in more than a year.

Sales of existing homes have been steadier since the start of spring, and some economists believe that sales of previously-owned homes may indicate that buyers are more closely limited both spending and financing.

Home sales—both newly constructed and existing—are seen as one of the leading indicators of the health of the U.S. economy.

Related Thursday Review articles:

Housing: Rebound or Recession?; Thursday Review; May 27, 2014.