Interest Rate Roundup

Monday, March 26, 2007

New home sales nightmare

There's no way to spin this one -- the new home sales report was simply awful ...

* New home sales DROPPED 3.9% between January and February, versus expectations for a gain of 5.4%. On a year-over-year basis, new home sales were down by a sharp 18.3%. And it gets even worse -- the seasonally adjusted annual rate of sales – 848,000 – is the lowest going all the way back to June 2000!

* Sales were down in three out of four regions (Northeast, Midwest, and South).

* The supply of new homes for sale rose to 546,000 in February from 538,000 in January. That’s the highest since October, and it reverses the improvement in inventory trends we had seen the past few months. Worse, it represents 8.1 months of supply at the current sales pace. That is a huge deterioration from 7.3 months in January and a fresh cycle HIGH.

* Median prices? They rose to $250,000 from $243,200 in January. However, median prices are still down 0.3% year-over-year.

There is simply no sugar-coating these numbers. They show a new home market that is weak, weak, weak. The fact median prices rose, but sales dropped sharply, tells me that any attempt by home builders to raise prices will be met by stiff consumer resistance. The only way companies are going to be able to work through the major supply glut we have is by cutting prices and adding more incentives.

I’ve been saying for a while that the housing market would remain depressed in 2007 – that forecast looks spot on, given the deterioration evident in the Census Bureau figures. It’s worth noting that the subprime mortgage market didn’t really start falling apart until late February. That means these statistics do NOT include a big chunk of the fallout from tightening lending standards. Sales could be even worse in March, April, and May if lenders cut back on 100% LTV loans, stated-income financing, high-risk, short-term subprime ARMs, and more.


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