Implications: Today's report on new home sales remained sluggish and came in below consensus expectations. Part of this is due to the expiration of the homebuyer tax credit, which required buyers to sign a contract by the end of April, moving future sales forward. As a result, new home sales, which are counted at contract, increased to a 414,000 annual pace in April. Since then (May thru August), sales have averaged only a 293,000 annual pace. But there is likely more going on than just the credit. Typically, new home sales comprise 15% of all sales; lately, they've been less than 7%. Many people who would otherwise be in the market for a new home can get a similar existing home that was built in the past decade, due to heavy foreclosures and short-sales. Given a growing population, new home sales should increase over the next several years to roughly 950,000. But excess inventories of existing homes are slowing that process.
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