Interest Rate Roundup

Thursday, May 24, 2007

New home sales: Activity surges as prices plunge

We just got the latest snapshot of the U.S. housing market -- April new home sales. Here's the data, with my take on what the numbers mean:

* New home sales soared to a seasonally adjusted annual rate of 981,000. That was up a hefty 16.2% from a revised 844,000 units in March, the biggest monthly gain since April 1993. Economists were expecting sales to rise only slightly -- 0.2% to 860,000 from an originally reported 858,000 units in March. On a year-over-year basis, home sales were still down 10.5%. The April 2006 sales rate was 1.097 million.

* On the inventory front, there were 538,000 new homes for sale as of last month. That was down 1.5% from 546,000 in March and down 4.8% from 565,000 in April 2006. On a months supply at current sales pace basis, we had 6.5 months of inventory. That was down sharply from a revised 8.1 in March, but up from 6.2 in April 2006.

* Median prices? Fasten your seat belt. They plunged 11% to $229,100 from $254,000 in March. That was also off a sharp 10.9% from last April, when prices hit a record (to date) of $257,000. This was the worst year-over-year drop in prices going all the way back to December 1970, as shown in this chart from Bloomberg.

When you slash prices and pile on the incentives, you move product. That was the lesson the auto industry taught us post-9/11, and that's the lesson in today's new home sales report. Sales surged by more than 16% and inventory levels fell because builders lopped thousands off the price of their homes. In fact, median prices showed the sharpest year-over-year drop in April in almost 37 years!

The good news: There's still housing demand at the right price. Plus, inventories are slowly coming down. The bad news: Supply remains at very high levels, historically speaking. And if you're looking to sell your house, you're up against some extremely aggressive competition from the new home industry.


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