Interest Rate Roundup

Wednesday, February 28, 2007

New home sales stink up the joint

The new home sales figures for January were released today. Here’s my take …

* I hope your seat belts were fastened coming into this new home sales number, because sales came to a screeching halt! The seasonally adjusted annual rate of sales was a paltry 937,000 in January, down a whopping 16.6% from December’s 1.123 million SAAR. The January sales rate is the weakest going all the way back to February 2003, almost four years ago. The one-month decline was the single worst drop in 13 years.

* Inventories remain elevated – a seasonally adjusted 536,000 homes for sale in January. That’s roughly unchanged from December’s 537,000 and down from the 573,000 peak in July. But it’s up about 2.7% from a year ago. It’s also far above the roughly 280,000 – 370,000 range that persisted throughout most of the 1990s.

On a months’ supply at current sales pace basis, we had 6.8 months of homes on the market in January. That’s just shy of the cycle peaks – 7.2 months in October and July. Keep in mind that the new home inventories figures fail to account for order cancellations. Specifically, if you contract to buy a house, it’s recorded as a new home sale … but if you later back out of that contract, the home is not added back to the overall inventory count.

* Median prices remain roughly stagnant. They were roughly unchanged month-over-month ($239,800 in 1/07 vs. $239,400 in 12/06). But they are well off the high of $257,000 in April 2006 and they were down 2.1% from a year ago in January. That was the second biggest YOY decline reported for this cycle (behind September, when prices were down 5.7%)

Let’s cut to the chase – these numbers were ugly. While the month to month changes in new homes sales figures can be volatile, the magnitude of the decline is impressive – almost five times worse than the consensus forecast (-3.6%). This speaks volumes about the ongoing weakness in the housing sector. Inventories remain elevated. Housing affordability remains low, historically speaking. And now, mortgage lending standards are tightening. All of this bodes ill for the 2007 spring selling season. I don’t expect a true, lasting rebound in housing until at least 2008.


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