Monday, July 27, 2009

New Home Sales: June 2009

Subtitle: More Green Shoots… Still No Bottom

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for June showing the third consecutive increase in sales of newly constructed single family dwellings bringing the seasonally adjusted annual sales pace to 384,000 units or just slightly under the level seen in November 2008.

Still, demand for new homes appears to be weak falling 21.31% from last year and remaining 72.35% below the peak level 2005.

Further, although today’s release showed a continued reduction in inventory and a monthly and 8.8 months of supply, the median months for sale reached a peak value of 11.8 (more on this later).

The following charts show the extent of sales declines seen since 2005 as well as illustrating how the further declines in 2009 are coming on top of the 2006, 2007 and 2008 results (click for larger versions)

It’s important to note that although the new home sales data appears to have prompted the traditional media to make many “bottom calls” recently, the evidence for their conclusions were scant.

First, most “bottom callers” have focused too closely on just the new home sales series and its historic bottoms rather than other important indicators that disclose a more complete state of the new home market.

As I have argued recently, the level of inventory and supply and level of completed new homes are still too high for a real sustained bottom for the new home market.

The following chart (click for larger) plots the new home sales (SAAR) series along with the current inventory level (NA) and the level of homes completed (NA) since 1973.

As you can see, although the new home sales series has breached the lowest level in over 30 years, the level of inventory (homes for sale at end of period) still remains higher than past historic bottoms and the level of homes completed remains much higher.

In fact, the level of completed new homes remains WELL ABOVE the PEAK levels for past housing boom periods… a truly bad sign for pricing going forward.

Make no mistake, I’m not suggesting that these three series will all bottom simultaneously, a simple cursory review of the chart above will dispel that notion, BUT I believe that if you consider the downward trend in home prices, the state of the job market, the lack of credit availability as well as the extent of the former boom (just look at the run builders had above.. steadily increasing sales from January 1991 to July 2005… truly unparalleled!) any sustained bottom is still a long way off.

The new home market might be in the process of clearing but at the moment it still looks seriously impaired and of the steadily shrinking pool of prospective buyers (from lack of confidence, lack of job or lack of cash and credit availability) those who wait to buy will almost certainly continue to find better pricing…. Thus sales will continue to fall.

Look at the following summary of today’s report:


  • The median sales price for a new home declined 11.99% as compared to June 2008.
  • New home sales were down 23.3% as compared to June 2008.
  • The inventory of new homes for sale declined 35.6% as compared to June 2008.
  • The number of months’ supply of the new homes has decreased 17.8% as compared to June 2008 and now stands at 8.8 months.

  • In the Northeast, new home sales were down 11.4% as compared to June 2008.
  • In the Midwest, new home sales were up 5.8% as compared to June 2008.
  • In the South, new home sales were down 34.4% as compared to June 2008.
  • In the West, new home sales were down 9.6% as compared to June 2008.