Homebuilders Get Boost, but Face Rocky Road

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Sales of newly built homes in Mayhit the highest level in two years, and the median price of those homes was 5.6 percent higher than it was a year ago. The number of new homes now expected to sell in 2012 is 369,000.

Great news … sort of.

The numbers are going up, and that’s exactly where they need to go, but in looking at housing investments in the short term, we have to always keep these numbers in perspective.

“Bottom line, after bottoming at 273,000 in Feb 2011, down from 1.389 million in July 2005, new home sales continue their bottoming process at near the lowest level since at least the early 1960's,” reminds Miller Tabak’s Peter Boockvar. “A sharp recovery though from this bottoming is a different story, and patience will have to endure for reasons we're all well aware of still.”

Those reasons include over four million properties with delinquent loans that may or may not be in the foreclosure process yet, a still-tough credit market, weak consumer confidence and a weak recovery in the jobs market. You can see this weakness when you look inside the new home sales numbers … the Northeast and South saw increases month-to-month, but sales fell in the Mid-West and West, where so much of the distressed housing supply remains.

New homes make up less than 10 percent of the overall housing market, and builders rely on first-time homebuyer demand, which is still weaker than it has been historically. Home ownership is still shrinking and will likely continue. More than half of the 114 economists surveyed by Zillow this month said they expect that in five years the homeownership rate will be below 65.4 percent, which was the last recorded rate in the first quarter of this year. One in five said it would dip below 63 percent, “testing or breaking the 62.9 percent rate established in 1965, the lowest on record,” according to the Zillow report.

“The fact that more than half of respondents believe that the homeownership rate will fall lower should be a sobering reminder that significant challenges remain ahead for the housing market, from negative equity to millions of foreclosed homeowners who now have impaired credit, making a return to homeownership harder than it would be otherwise,” notes Zillow’s Chief Economist Stan Humphries.

On the bright side, the majority of economists said home prices will increase (1.4 percent) in 2013. This is the first time the 114 economists surveyed were in overall agreement over where home prices are headed. The jump in prices of newly built homes is a good sign, but it could have more to do with a lack of supply of distressed properties on the market right now; that could change in the second half of this year, as lenders work through the backlog of delinquent loans more quickly.

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