June New Home Sales "Great Success!"

Today the June new home sales report was released and it showed an annualized rate of 433,000. This number blew away expectations of 390,000... "Great Success!!" or is it?

If you look at the chart above it looks like about 800,000 units a year is fairly average, we are still way below par. Recession or no recession people are going to need new homes, cars, dishwashers, etc. that's just the way it is. While it is encouraging that the "stock" of homes on the market is down from a 13 month supply to a 9 month supply it hardly is giving me the warm fuzzies. 90% of people still have jobs and interest rates are at historic lows this is a prime environment to move some homes and yet it really isn't happening.

What is scary is that interest rates are going to go up because when you are at ZERO there is only one direction, no? I also have the feeling that home prices are going to firm up real soon and start actually going up, this will have more to do with the devaluation of the dollar than real demand for real estate. This will have the added benefit of making banks solvent again.

The 12 trillion dollar question is if wages will keep pace with the rise in housing stock? I'm thinking no. So couple decreased purchasing power and credit availability with higher prices and interest rates and I don't see us getting back to 800,000 units a year. We are on the right track but I see a ton of tough sledding in front of us.