Wednesday, November 25, 2009

New Home Sales: October 2009

Subtitle: Bounce Bounces Again!?

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for October showing the first annual increase to new home sales in 47 months clearly indicating that, as with existing home sales, "buyers" rushed to take advantage of the expiring housing tax credit sending sales volume up 5.1% compared to October 2008.

The government tax gimmick has clearly had a significant effect on demand, far more than I had originally anticipated, but the question is, how long can this artificial demand last?

Many metro markets still have typical home prices that are way out of line with typical household incomes, a large overhang in inventory and mounting defaults.

Now that home prices are back on the decline it should be clear to all that many housing markets are a long way from the bottom in prices yet "buyers" continue to jump for the government tax carrot.

As we learned from the recent Bob Toll Q&A, even 8% of Toll Brothers homes are financed through FHA... luxury homes with a typical price point in excess of $700K are selling to "buyers" using financing that was intended to give a leg up to low-income families... how long can these government shenanigans last?

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)

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 completed homes still remains significantly higher than in past historic bottoms.

Look at the following summary of today’s report:


  • The median sales price for a new home declined .47% as compared to October 2008.
  • New home sales were up 5.1% as compared to October 2008.
  • The inventory of new homes for sale declined 37.1% as compared to October 2008.
  • The number of months’ supply of the new homes declined 39.2% as compared to October 2008 and now stands at 6.7 months.

  • In the Northeast, new home sales increased 5.1% as compared to October 2008.
  • In the Midwest, new home sales declined 11.1% as compared to October 2008.
  • In the South, new home sales increased 8.4% as compared to October 2008.
  • In the West, new home sales increased 8.1% as compared to October 2008.