New Home Sales Disappointed in May

Sales of new homes slid to 342,000 units at an annual pace in May, off of a downwardly revised level of 344,000 in April. Over the last three months the net revision was a loss of 32,000 units. While the market was looking for a slight gain, this report reinforces the picture of a market moving sideways for some time.

Sales Dropped

Sales dropped 0.6 percent on the month, but remain four percent higher than the current cycle low set in January of this year. Sales have largely moved sideways on trend over the last few months. Notwithstanding some month-to-month volatility we expect that sales activity will continue this trend.

Median and average prices both moved higher for the second month in a row, the first such occurrence since last summer.

Inventory Levels Continued to Decline

Inventory levels continued to improve and have now fallen 144,000 units over the past year. Inventory levels are now back below the relatively stable range held during the late 1990s. With very little new construction in the pipeline, and even less incentive to begin new speculative building, we expect that inventory levels will remain depressed for sometime. This should begin to take pressure off of prices in the medium-term.

Wachovia Corporation
http://www.wachovia.com

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