The Commerce Department just released data on new home sales, and the data overall is not good. Sales fell by a worrying 8.4 percent in June. This erases last month's impressive gain of 7.9 percent (which was revised up slightly). The silver lining in this dark cloud is that compared to last June, sales are up nationally by about 15 percent.
Regionally, the Northeast was completely crushed, with a 60 percent decline in June from May. But the West held up with a 2.1 percent gain.
The news contrasts with recent speculation that the housing market in the U.S. is forming a bottom for falling prices (you have to be careful, though, about assuming that sales data and prices data are somehow connected.)
There's another factor to take into account, however. As Reuters points out, housing inventories are "near record lows," at least where new homes are concerned. What's holding back a more robust recovery is the sluggish economy — it only grew at 1.9 percent in the first quarter and added on average less than 80,000 jobs in the second quarter. Plus, the markets are worried about the neverending eurozone crisis and its latest phase, the apparent collapse of Spain's financial system.
The big question is whether some of these headwinds will abate through the third and fourth quarters and enable buyers to capitalize on lower prices and historically low interest rates. That kind of activity would put pressure on the existing new-home inventory — now less than six-months worth — and encourage homebuilders to start hammering together two-by-fours and pouring concrete again. They're already starting to do that at a more brisk pace: construction of new homes hit a four-year high in June.
And that would benefit California, where we're still struggling to deal with the hit to employment that our housing sector took during the financial crisis. We also don't really have enough houses in California, as Beacon Economics' Jordan Levine recently explained. So we need the new-construction market to improve, so we can remain competitive long-term.