US New Home Sales holding up but for how long?

New home sales for July increased to a seasonally adjusted 870,000 up 2.8% on an upwardly revised 846,000 in June. Whilst not exactly startling the number beat everbody in the market's forecast.

Inventories of unsold homes fell about 1% to 533,000, the fourth consecutive decline. At the July sales pace, the inventory represented 7.5 months' supply, down from 7.7 months in June. Inventories are down 7% since last July.

As always it should be noted that the smapling error is so high that the government cannot be sure in most months whether sales rose or fell. It is believed that it takes at least 5 months of data to form any kind of trend. The five-month sales average of 867,000 is now down 19% from last July's 1.07 million pace.

Most economists agree it's far too early to start talking of a turnaround in Housing. In August Builders sentiment plunged to lows not seen since 1991. In addition these numbers are largely old news in that they have not captured the period since the credit crunch really kicked in.

A number of mortgage lenders stopped originating riskier loans in August among them Countrywide Financial Inc. (CFC) the nations biggest mortgage lender. Couple this with tighter lending standards and the fact the market for MBS of all grades has practically dried up the risk for New Home Sales still remains on the downside.