New-Home Sales Increase, but ...

May 24, 2006 — -- The U.S. Census Bureau said this morning that new-home sales were up slightly from the previous month to the highest level since last December -- a surprising number considering that mortgage rates are at four-year highs.

The April increase, however, was partially due to the fact that the Census Department revised the March sales figure downward from 1.213 million new housing units sold to 1.142 million.

The sales numbers aren't quite as flattering when compared to 2005 levels. Home buyers bought 1.198 million homes in April, up 4.9 percent from March, but down 5.7 percent from April 2005.

The April sales figure was slightly above what analysts had expected.

So What Does This Mean?

For comparison sake, comparing year-to-year is a better indicator and that verifies what economists have been expecting -- a slowdown in the housing market.

Another indicator of the slowdown: Inventories of newly built homes increased to 565,000 homes -- representing a supply of more than 5½ months at the current sales rate. That means more homes are available for sale.

The median sales price for a new home sold was $238,500. That's up only 0.9 percent compared to a year ago when new homes sold for a median price of $236,300. On a month-to-month basis, the median price of a new home sold in April climbed by 2.8 percent from the March level of $232,200.

The year-over-year decrease in sales is not surprising as interest rates continue to rise. Last week, Freddie Mac reported that mortgage rates had hit their highest level in nearly four years. A 30-year fixed mortgage was 6.60 percent, an increase of nearly 16 percent from a year ago when the rate was 5.71 percent. The last time mortgage rates were this high was the week ending June 20, 2002, when the rate was 6.63 percent.

Economist Joel Naroff put it this way: "I don't look at this as sudden rebound in the housing market but the usual ebb and flow and that the pullback in the housing market remains orderly."

What does an "orderly pullback" mean? "That means that there is no rout going on."