US New Homes Sales Plunge to New Record Low in July

08-25-10 - New home sales in July plunged -12.4% to 276,000 annualized units from June’s downwardly revised 315,000 annualized units (initially reported as 330,000 units). The decline was well below market expectations for a flat monthly reading. July’s level of new homes sales represents a new record low surpassing May’s upwardly revised 281,000 annualized units (previously 267,000 units). Months’ supply of unsold new homes jumped to 9.1 in July from June’s 8.0 (revised from 7.6), while the total number of new homes for sale held steady at 210,000, the lowest level since September 1968.

The large decline in new home sales in July more than retraces June’s 12.1% increase and represents the lowest pace of new home sales since records began in 1963. The weakness in new homes sales was seen across all regions, with the West (-25.4%), Northeast (-13.9%), South (-8.7%) and Midwest (-8.3%) all posting significant monthly declines.

Inventories, as measured by months’ supply of unsold homes on the market at the current sales rate, jumped to 9.1 in July from June’s upwardly revised 8.0 (previously reported as 7.6) in the face of the very weak level of sales, although this remains well below the recent peak of 12.1 set in January 2009. In absolute terms, the number of unsold new homes held steady as in July at June’s unrevised 210,000 level.

Today’s new home sales report compounds yesterday’s extremely disappointing existing home sales data. The persistent weakness in housing comes despite record-low mortgage rates and emphasizes the general lack of demand for housing. With employment growth expected to be modest in the near term, this low level of housing market activity will likely continue to act as a drag on the economy, prompting the Fed to keep monetary conditions highly accommodative in an effort to help support demand. As a result, we continue to expect that the Fed’s funds rate to remain in its current highly stimulative range of 0% to 0.25%.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.