US New Home Sales Struggling to Gain Momentum

Figures just released from the Commerce Department show the housing market is still struggling, as purchases of new homes fell in May by 2.1%, for the first time in three months to 319,000 a year.

Builders are facing the problem of nearly 2,000,000 distressed properties, which it is estimated could take three years to sell at the current rate, especially as the unemployment rate is around 9%. Scott Brown, chief economist at Raymond James & Associates Inc. in Florida says "Things are still going to be weak for a while, we need to see much better job growth and more confidence in general."

The median asking price for a new home fell by 3.4% from May 2010 to $222,600, which is the largest twelve-month price fall since October. The number of sales fell in two out of four regions, dropping by 27% in the North-East, and 3.5% in the West, although numbers increased 2.4% in the South. House builders have responded by cutting back on projects and there were just 166,000 new homes on the market at the end of May, with the current supply now down to 6.2 months’ worth.

Sales of existing homes were also down 3.8% in May from the previous month, according to data from the National Association of Realtors. Six years ago sales of existing homes accounted for 85% of the market, but that figure has increased to 94% as buyers choose to take advantage of foreclosures and distressed sales.

The lack of growth in the housing market is affecting other areas of the economy, with major retailers expecting recovery to continue to be somewhat patchy, especially for lower and middle income households.This is because they will need to see real evidence of a recovery, which includes income growth before they  feel secure enough to spend more freely.

This slow growth is also frustrating the Fed policymakers, and Bernanke has already said they will take additional action, including the purchase of more Treasury securities if these conditions continue.