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Home Publications Blogs Beat the Press Quick Note on July New Homes Sales: It Is a Big Deal

Quick Note on July New Homes Sales: It Is a Big Deal

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Friday, 23 August 2013 09:24

The Census Bureau reported a 13.4 percent drop in new home sales in July. This could be a really big deal.

House prices had been rising rapidly in many parts of the country and there was a real basis for concern about bubbles in many markets. While these bubbles were not driving the national economy, as they had been in the years 2002-2007, there was a real risk that many homebuyers would again buy into seriously over-valued markets and face large losses on their homes.

It appears that the interest rate hikes in May-June curbed the enthusiasm of investors for real estate, thereby taking the air out of the bubble. The reason why the July new home sales data is important information on this point is that it is giving us data on contracts signed in July. Most other data sources are about sales which reflect contracts that were typically signed 6-8 weeks earlier. The July sales data strongly reinforce realtor accounts of a weakening market in the last two months.

Comments (4)Add Comment
hikes sounds funny
written by pete, August 23, 2013 7:10
Interest rates rising in spite of declining deficits and constant fed policy. Doesn't that seem to be the way things should work? Increased borrowing pushing up interest rates? Hike sounds like some magician in Washington did something right. In fact, since the fed program is constant, and the deficits are falling, then rates should be declining since they are buying a bigger percentage of the deficit. So it is wonderful that the market is functioning to shut down the bubble, instead of being manipulated by the fed.
Working Markets?
written by JayR, August 23, 2013 9:42
From one of the comments "...the market is functioning to shut down the bubble..." I believe when the feds started talking about shutting down quantitative easing(QE) that interests rates rose. QE was used to buy tons of mortgage securities so there being a linkage between QE extremely low mortgage interest rates, is quite reasonable. One of my pet theories is:
1. Quite a few fed officials saw the emerging bubbles.
2. Feds didn't want to panic markets too much
3. Feds decided to soft sell the QE as just an gradual tapering.
I like this theory because the alternative is the feds are idiots and really think the economy is doing just fine. Yes I am being quite charitable in my thinking.
Hey JayR, maybe they will be lucky this time...
written by pete, August 24, 2013 4:41
After so many failures, 70s 80s 90s 00s, maybe the teens will be their time to shine. Shutting down QE is conditional, and recent macro news suggests the condintionality will not be met. I would say the capital market would do a much better job without easy money dot com and housing bubbles. In the 90s rising rates would have choked off the dot com bubble, as they would have in the 00s. In both cases the Fed did not allow the market to function. Friedman, Krugman's latest hero, exactly warned that the problem of macro and monetary policy is trying to figure out what is going on, and as a result activist macro policy is likely to be procyclical, exacerbating swings, a la the 90s and 00s. Hayek also expounded on the inability of regulators to outperform the market, since they would not have the requisite information. Sigh...So now we are approaching what, 2002 housing price levels, when Dean and Shiller said we were in the midst of a bubble????
But existing homes rose 6.4%
written by Shawn, August 28, 2013 6:52
Source is a bit dubious (from NAR), but assuming they are accurate, wouldn't this show that the market is simply trending to existing homes and not ones recently built?

Link: http://www.bloomberg.com/news/...-2009.html

Full disclosure: I am not fluent in this field of expertise. Please forgive and correct any errors.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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