Wednesday, January 27, 2010

New Home Sales: December 2009

Subtitle: 3% To The Low

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for December showing both notable revisions to prior months results as well as a sizable 7.6% month-to-month decline in sales of newly constructed single family dwellings bringing the seasonally adjusted annual sales pace down to 342,000 units or 8.6% below the level seen in December 2008 and remaining 75.38% below the peak level seen in 2005

So much for the “end of the housing decline”…

We are now only 3% above the record low hit in early 2009 and likely on course with a breach of that level in the next few months.

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 government sponsored bounce seen since March 2009 as if it were a solid indication that the bottom was in, those who have followed this dataset 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 continue to 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 throughout 2009 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 8.1 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 6.09% as compared to December 2008.
  • New home sales were down 8.6% as compared to December 2008.
  • The inventory of new homes for sale declined 34.0% as compared to December 2008.
  • The number of months’ supply of the new homes has decreased 27.7% as compared to December 2008 and now stands at 8.1months.
  • The Median months for sale increased to another historic record of 13.9 months.

  • In the Northeast, new home sales increased 33.3% as compared to December 2008.
  • In the Midwest, new home sales declined 27.1 as compared to December 2008.
  • In the South, new home sales declined 7.8% as compared to December 2008.
  • In the West, new home sales declined 12.0% as compared to December 2008.