Interest Rate Roundup

Thursday, October 25, 2007

September new home sales

Yesterday was existing home sales day. Today, it's new home sales for September. Here's what the just-released figures show:

* Sales rose 4.8% to a seasonally adjusted annual rate of 770,000 from a revised 735,000 SAAR in August (previously reported as 795,000). On a year-over-year basis, sales were down 23.3% from 1.004 million in September 2006.

Now here's where it gets tricky: The month-over-month change in home sales was"better" than the economists' forecasts for a 3.1% decline. But the actual number of home sales was right in line with the forecast. Moreover, the last three months' worth of home sales figures were revised dramatically lower. June went from 835,000 to 797,000 ... July went from 867,000 to 798,000 ... and August went from 795,000 to 735,000.

* For-sale inventory came in at 523,000 new homes. That was down 1.5% from 531,000 in August (previously reported as 529,000) and down 6.6% from 560,000 in September 2006. On a months supply at current sales pace basis, inventory was 8.3 months, down from 9 in August (previously reported as 8.2), but up from 6.8 a year earlier.

* Median prices rose 2.5% to $238,000 in September from $232,100 in August (previously reported as $225,700). Prices were up 5% from $226,700 in September 2006.

Mark Twain popularized the saying that there are three kinds of lies: lies, damned lies, and statistics. He probably wasn't referring to the Census Bureau's new home sales figures. But boy, are this month's figures convoluted.

For starters, sales "rose" 4.8% vs. forecasts for a 3.1% decline. But that's only because the government statisticians vaporized 60,000 of August's sales. Had August's sales rate remained the same, the decline would have been ... drum roll please ... 3.1%!

According to the statisticians, it was a big month for median home prices, too. They rose 5% from a year ago! That's the strongest rate of appreciation since March, when prices rose 10% year-over-year. Of course, this is all news to the major home builders, who have been announcing price cuts and throwing everything but the kitchen sink at buyers.

In short, color me skeptical about these volatile sales and price figures. IF they're right, then maybe the new home market is finding a floor here. But I'll need to see a few more months of data to believe that.

There is one genuine area of improvement that I can see -- inventories. Unlike the existing home market, where sellers are proving to be stubborn and holding out for unrealistic prices, the new home market has now seen a steady decline in the absolute number of homes for sale. That's because builders are cutting back on home construction and enticing buyers with aggressive price cuts on standing inventory -- even if that's not showing up in the "official" pricing data.

Some perspective is important, though. Yes, for-sale supply is down 8.7% from its July 2006 peak of 573,000. But it's still way, way above normal. Throughout the 1990s and early 2000s, monthly readings mostly ranged from 280,000 to 350,000 units. In other words, we still have about 150,000-200,000 more new homes on the market than is customary.

Long story short, the new home market is ahead of the existing home market in trying to find a floor. But with inventory still extremely high, lending markets tight, and prices still elevated, the recovery process will take some time.


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