Wednesday, December 23, 2009

New Home Sales: November 2009

Subtitle: Stop The Presses!!!!

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for November showing both significant revisions to prior months results as well as a whopping 11.3% month-to-month decline in sales of newly constructed single family dwellings bringing the seasonally adjusted annual sales pace down to 355,000 units or 9.0% below the level seen in November 2008 and remaining 74.44% below the peak level 2005

We are now only 1.87% above the record low hit earlier this year and likely on course with a breach of that level come early 2010.

It’s important to recognize the significance of revisions when interpreting both the new home sales and new residential construction data.

Although many in the traditional media and elsewhere have been treating the bounce seen since March as if it were a solid indication that the bottom was in, those of us who have followed this data for years know that one needs to rely on a mix of multiple metrics along with healthy dashes of skepticism and hunch in order to glean out the true trend.

Needless to say, these must be awfully disappointing numbers for many.

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

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

The bounce in new home sales seen this year was an authentic increase in overall 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 prior posts, given that the level of completions remains significantly elevated and since there is still currently 7.9 months of supply, it is very likely that we will be headed back for a new low come early 2010.

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 earlier this year the new home sales data prompted the traditional media to make many “bottom calls”, the evidence for their conclusions were scant.

First, most “bottom callers” 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.

Look at the following summary of today’s report:


  • The median sales price for a new home declined 1.9% as compared to November 2008.
  • New home sales were down 9.0% as compared to November 2008.
  • The inventory of new homes for sale declined 36.5% as compared to November 2008.
  • The number of months’ supply of the new homes has decreased 30.7% as compared to November 2008 and now stands at 7.9 months.

  • In the Northeast, new home sales declined 23.7% as compared to November 2008.
  • In the Midwest, new home sales increased 23.6% as compared to November 2008.
  • In the South, new home sales declined 14.8% as compared to November 2008.
  • In the West, new home sales declined 9.2% as compared to November 2008.