Housing Bubble

New home sales break another record in June

July 25, 2003

WASHINGTON, -- Spurred by the lowest long-term mortgage rates since 1956, sales of new single-family homes rose to a second consecutive record-breaking high in June at a seasonally adjusted annual rate of 1.16 million units, the Commerce Department reported today. This was 4.7 percent ahead of the revised 1.11 million-unit sales pace in May.

"Mortgage rates hit lower-than-anticipated levels in June, averaging a remarkable 5.23 percent. For many who had been considering a home purchase, the incentive to lock in those rates was just too great to pass up," said Kent Conine, president of the National Association of Home Builders (NAHB) and a home and apartment builder from Dallas.

"Looking ahead, with the economy expected to pick up steam, jobless claims on the decline and home values rising steadily, home builders are reporting increased traffic of prospective buyers and expecting strong sales activity in the next six months," Conine noted. "And don't forget that every new-home purchase helps stimulate the economy even further." During the first 12 months after purchasing a newly built home, owners spend an average of $8,900 to furnish, decorate and improve that home -- more than twice what non-movers spend.

For the first half of this year, the average pace of new-home sales was running 11 percent ahead of the strong pace set in the same period last year. "At this point, it's nearly certain that we'll set another record for new-home sales in 2003," Conine said.

Even with mortgage rates creeping up a bit, they are still quite low by historic standards, he noted, adding that the effects of higher rates should be somewhat muted by the continuing availability of Adjustable Rate Mortgages (ARMs) at exceptionally attractive terms.

Builder inventories of new homes for sale remained at healthy levels in June. While Commerce reported a 1.2 percent increase to 345,000 units on the market, the majority of that increase was in homes that have not yet been built. Moreover, the months' supply at the current sales pace fell slightly to just 3.6 months.

Sales of new homes rose in every region in June, with the largest increase -- over 32 percent -- reported in the Northeast, and other solid gains of 9.8 percent and 2.7 percent gauged in the Midwest and West, respectively. The South, which is the nation's largest housing market, posted a nearly 1 percent gain.

NAHB recently increased its forecast for new-home sales for all of 2003 to 985,000 -- up 1 percent from last year's record-breaking 977,000 units.

Source: National Association of Home Builders