Wednesday, October 28, 2009

New Home Sales: September 2009

Subtitle: Bye Bye Bounce…

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for September showing both significant revisions to prior months results as well as a whopping 3.6% month-to-month decline in sales of newly constructed single family dwellings bringing the seasonally adjusted annual sales pace down to 402,000 units or 7.8% below the level seen in September 2008 and remaining 71.06% below the peak level 2005

Ah... yes… These must be awfully disappointing numbers for many.

…The Feds, Wall Street, speculators, all the unwitting suckers that locked in “housing bottom” home purchases using government handouts and bribes.

Well, the system may be a shell of its former self, twisted and tortured by the feds, industry groups and speculators, but it’s not about to be gamed by such tomfoolery.

As I had pointed out earlier in the year, the new home sales numbers are highly revised and have given a multitude of false “recovery” starts in recent years... though this season’s bump up has been far more notable, the result of the tremendously costly government tax giveaway.

We saw an increase an activity but not in “organic” activity… How would new home sales have trended without the government propping?

So, the “real” bottom is not in and, as I have noted in the prior posts, given that the level of completions remains near peak levels of past boom periods and that there is still currently 7.5 months of supply, it is very likely that we will be headed back for a new low come mid-winter.

In any event, it looks like buying activity has been slower than was past reported and is continuing to slow as we move through the fall and I say good riddance!

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 slightly higher than past historic bottoms and the level of homes completed remains much higher.

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

Look at the following summary of today’s report:


  • The median sales price for a new home declined 9.06% as compared to September 2008.
  • New home sales were down 7.8% as compared to September 2008.
  • The inventory of new homes for sale declined 36.5% as compared to September 2008.
  • The number of months’ supply of the new homes has decreased 31.2% as compared to September 2008 and now stands at 7.5 months.

  • In the Northeast, new home sales increased 68.0% as compared to September 2008.
  • In the Midwest, new home sales increased 12.7% as compared to September 2008.
  • In the South, new home sales declined 23.6% as compared to September 2008.
  • In the West, new home sales declined 1.0% as compared to September 2008.