The number of people who bought new homes fell for the fourth straight month in July, putting sales on track to finish this year as the worst on records dating back half a century.
Sales of new homes fell nearly 1 percent in July to a seasonally adjusted annual rate of 298,000, the Commerce Department said Tuesday. That's less than half the 700,000 that economists say represent a healthy market.
“It’s more evidence that recent weakness in the economy and the drop in consumer confidence is taking a toll on the housing market,” said Paul Dales, U.S. economist at Capital Economics in Toronto.
“I think there will very little chance that the housing market will recover in the second half of the year or even the next few years. The housing market is struggling with banks asking for increased down payments and there are significant structural issues holding back demand,” he said.
Housing remains the weakest part of the economy. Last year was the worst for new-home sales on records dating back a half century.
While new homes represent less than one-fifth of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs and $90,000 in taxes, according to the National Association of Home Builders.
But all sales remain weak. Sales of previously occupied homes fell in July for the third time in four months, and they are trailing last year's 4.91 million sales, the fewest since 1997. In a healthy economy, people buy roughly 6 million existing homes annually.
High unemployment, larger required down payments and tougher lending standards are preventing many people from buying homes.
Plunging stocks and a growing fear that the U.S. could tip back into another recession are also keeping people from entering the troubled housing market.
A report last week on sales of previously owned homes showed that more sales than usual fell apart at the last minute, a sign that many buyers may be nervous about the economy. At least 16 percent of deals were canceled head of closings last month — four times the rate in May.
Foreclosures and short sales are forcing down prices. A short sale is when a lender accepts less than what is owed on the mortgage.
Those homes are selling at an average discount of 20 percent, and they lower neighboring values. That's made many re-sales a bargain compared with new homes, creating an average 30 percent disparity in prices.
Sales of new homes have fallen 18 percent in the two years since the Great Recession officially ended.
A telling sign of how bad things have gotten for the housing industry: Prices have dropped more since the recession started, on a percentage basis, than during the Great Depression of the 1930s.
And it took 19 years for prices to fully recover after the Depression.