Interest Rate Roundup

Monday, January 28, 2008

New home sales fall sharply ... again

The Census Bureau just released its latest recap of the new home market. The data for December show ...

* Sales dropped another 4.7% to a seasonally adjusted annual rate of 604,000 from a revised 634,000 SAAR in November (previously reported as 647,000). On a year-over-year basis, sales plunged 40.7% from 1.019 million in December 2006. Sales haven't been this weak since February 1995 (shown in the chart above).

* For-sale inventory came in at 495,000 new homes. That was down 1.4% from 502,000 in November (previously reported as 505,000) and down 7.5% from 535,000 in December 2006. The peak was 573,000 units in July 2006. On a months supply at current sales pace basis, inventory was 9.6 months, up from 9.4 in November (previously reported as 9.3), and up from 6.2 a year earlier. The latest reading is a cycle high, and the worst since October 1981.

* The median price of a new home plunged 10.9% to $219,200 in December from $245,900 in November (previously reported as $239,100). Prices were down 10.4% from $244,700 in December 2006. That was the worst year-over-year decline for this cycle ... in fact, it's the worst YOY fall since December 1970 (-11.2%). The median price of a new home is now the lowest since September 2004.

I think the real estate industry would probably like to just write off 2007. I don't blame them after seeing the latest new home sales figures. We had another sharp drop in sales volume ... the worst inventory reading since 1981 ... and the biggest year-over-year decline in median home prices since 1970.

Any glimmers of hope in the numbers? Well, the sharp cutback in housing starts is starting to bring down the absolute level of home inventories (though not the "months supply at current sales pace" reading referenced above). More blue light specials from the home builders during this spring selling season should help eliminate standing inventory, too. And then there's the mortgage rate picture, which has improved for borrowers with decent credit and some money in the bank.

But this purging process will take time, given the magnitude of the inventory overhang. I wouldn't be surprised at all to see home prices decline by the mid single-digits over the course of 2008 as that plays out.


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