Friday, September 25, 2009

New Home Sales: August 2009

Subtitle: Green Shoots Go Limp… Is That All You Got!

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for August showing the fifth, albeit tepid, consecutive monthly increase in sales of newly constructed single family dwellings bringing the seasonally adjusted annual sales pace to 429,000 units or 3.4% below the level seen in August 2008 and remaining 69.11% below the peak level 2005

You would think that the government’s historic first-time "homebuyer" welfare payments could trump up a bit more activity but it’s looking as if the pool of unwitting suckers is starting to dry up.

Like the “cash for clunkers” ruse, all this scam is doing is pulling forward demand while giving handouts to a lot of buyers who would have been capable of (…and fool enough) buying this year or next anyhow.

The government will more than likely extend this program and maybe even relax its terms but as home prices continue to decline it may soon become clear to both the newly minted “homeowners” and their representatives that this policy was misguided.

For the time being though, you can certainly expect the National Association of Realtors and the home builders to push hard for the extension of this swindle… In good times they rip you off honestly with bloated commissions or junk McMansions… In bad, they underhandedly lean on your representatives for a portion of your pay… it’s a classic lose-lose.

In any event, it looks like buying activity is slowing down 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 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 11.67% as compared to August 2008.
  • New home sales were down 3.4% as compared to August 2008.
  • The inventory of new homes for sale declined 36.4% as compared to August 2008.
  • The number of months’ supply of the new homes has decreased 34.2% as compared to August 2008 and now stands at 7.3 months.

  • In the Northeast, new home sales increased 28.6% as compared to August 2008.
  • In the Midwest, new home sales declined 31.9% as compared to August 2008.
  • In the South, new home sales declined 11.1% as compared to August 2008.
  • In the West, new home sales increased 30.4% as compared to August 2008.