New home sales increased 2.6% to an annualized rate of 858,000 units in March, up from a pace of 836,000 in February. It was the first increase in sales since December. Sales of existing homes, however, fell to an annualized rate of 6.12 million units in March, a huge drop-off from February’s 6.66 million unit pace. It was the biggest one-month percentage decline since 1989 and the lowest level of monthly sales since mid-2003.
The data for new and existing home sales are reported differently. The Commerce Department counts a new home sale when a sales contract is signed; the National Association of Realtors counts an existing home sale at closing. Because there can be many a slip—cancellations, failure to secure a mortgage, cold feet—between signing a contract and closing, the new home sales data is viewed more skeptically than the existing sales data. Also, the difference in timing means that erratic weather patterns can further complicate analysis. Unusually cold February weather is credited with preventing people from house-hunting and depressing March closings on existing homes. Unusually warm March weather is credited with luring people into house-hunting and increasing contracts for new homes.
Meanwhile, home prices continue to decline. The highly-respected S&P/Case Shiller Home Price Index reported an average decline of 1% in 20 major metropolitan areas between February 2006 and February 2007. Over the last six-months, the decline was 2.42%. In some areas home prices are falling precipitously. In Boston and Detroit prices are down more than 5% in the last half year, and they are down more than 4% in Washington DC, San Diego, and Cleveland. This is probably good news for Washington, where home prices have rocketed up 40% in three years. It’s not good for Cleveland (up 2% in three years) and especially Detroit (down 2.4% in three years).
What does it all mean? It means that the real estate markets are slowly correcting themselves from previous excesses. It means that all sorts of extraneous things can affect any one month’s statistics. It means real estate remains highly localized, with national trends smoothing out significant local fluctuations. It means there are still an awful lot of houses being bought and sold in this country.