Friday, April 24, 2009

New Home Sales…


Just read the headlines… Here’s one from Bloomberg:

“Sales of U.S. New Houses in March Were Higher Than Forecast in Sign Market is Stabilizing”

…and here’s one from CNN:

“New home sales show signs of revival”

The birds are chirping, the flowers are blooming, and the birds and bees are doing their thing. Life is glorious, did you see American Idol last night, that kid with the makeup and orange hair sure screamed well, he was way less screechy than that spoiled little girl with the big bosoms... and, oh, did you catch Survivor? Whoa, that dude sure kicked butt in the immunity challenge!

And now Nate gets to bring everyone back to earth, always a hit at parties, you can count on him to bring a good dose of reality that’s sure to melt a smile.

Seriously, I’m a very happy guy, especially when I’m riding my motorcycle, but I just don’t get the fluff. I like springtime, it’s terrific. It is the time people are out shopping for a place to nest, just like the birds. And thus we would expect home sales to INCREASE IN THE SPRING. But guess what? That’s NOT what happened.

Econoday - Housing data have been mixed at best but put new home sales on the high end of the list. New home sales slipped a very slight 0.6 percent in March to a higher-than-expected annual unit sales rate of 356,000. Importantly, data for February and January were both revised higher by a total of 30,000. The biggest recovery is in the West adding to indications that the center of weakness is strengthening. Total supply on the market eased to 10.7 months vs. January's 12.5 months at what may have been the absolute deepest part of the housing slump. Prices are showing life, slipping to median a $201,400 for a 12.2 percent year-on-year contraction that's an improvement from February's 15 percent contraction. At a 10.3 percent rate of contraction, the average price of $258,000 is doing better, perhaps reflecting a higher share of non-discount sales that is likely combined with further deterioration in low end prices. This report doesn't offer great news on the housing sector but it's not bad. Stocks and the dollar rose in reaction to the report while money moved of the Treasury market.

Sales revised up for the first two months of the year? Not enough to matter, the key here is that sales in March were DOWN from February when March is a traditionally a stronger month and it’s a longer month as well.

Here’s Econoday’s chart showing sales against interest rates:

Uh, there's a pretty clear trend in place, and frankly I don't see that trend broken on that chart. Beginning to level out? Maybe, but even if so, that does not equate to economic revival. And home builders counting on an upturn had better be equipped with very low expenses and enough cash to weather a very long cycle.

In their notes with the chart they say, “There is no question that lower interest rates boost home sales.” Okay, interest rates have been going down all last year and hit ZERO, as in as low as the FED can make them since December of last year. Yet, both new and existing home sales have been plummeting.

Sales of U.S. New Houses in March Were Higher Than Forecast

By Bob Willis

April 24 (Bloomberg) -- Purchases of new homes in the U.S. last month were higher than anticipated, providing further evidence the market may be stabilizing.

Sales decreased 0.6 percent to an annual pace of 356,000 after a 358,000 rate in February that was stronger than previously estimated, the Commerce Department said today in Washington. The median sales price decreased 12 percent from March 2008, while inventories of unsold homes fell to a seven- year low.

Federal Reserve efforts to bring mortgage rates down combined with tax credits for first-time buyers are likely to support sales in coming months. Still, the highest jobless rate in a quarter century, tight credit and record foreclosures indicate purchases won't rebound substantially.

``Through the ups and downs, sales have been close to flat in recent months,'' James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said before the report. ``We expect sales to start trending up again in coming months.''

Economists forecast new home sales would be unchanged at a 337,000 annual pace, according to the median estimate in a Bloomberg survey of 68 economists. Forecasts ranged from 310,000 to 375,000.

The median price of a new home decreased to $201,400, the lowest level since December 2003.

Annual Decline
Sales of new homes were down 31 percent from March 2008. They reached a record 1.389 million in July 2005.

The 5.2 percent decrease in inventories exceeded the decline in sales. The number of homes for sale fell to a seasonally adjusted 311,000, the fewest since January 2002, and the supply of homes at the current sales rate dropped to 10.7 months' worth, the lowest level in eight months.

Sales in March were led by a 15 percent surge in the West. Purchases plunged 32 percent in the Northeast. They were also down in the Midwest and were little changed in the South.

A report from the National Association of Realtors yesterday showed purchases of existing homes in March fell 3 percent to an annual rate of 4.57 million. The median price slumped 12 percent from a year earlier, and distressed properties accounted for about 50 percent of all sales.

Record Foreclosures
Mounting foreclosures have drawn more buyers to the existing- home market. New-home sales now make up about 7 percent of the total market, down from about 16 percent at the peak of the housing bubble in mid-2005.

Other indicators are showing signs of a bottoming in housing. Homebuilder confidence has risen from a record low in January to a six-month high in April. Mortgage applications to purchase homes are also up after reaching a nine-year low in February as the Federal Reserve drove down lending rates.

Still, analysts project an economy that has hemorrhaged 5.1 million jobs since December 2007 and consumer confidence near record lows means sales are likely to stabilize rather than rebound.

The money statement here is that sales in March are down 31% from March of last year. If that’s not economic cliff diving, I don’t know what is. Again, sales down month to month in the Spring is amazingly bearish, not birds and beeish.

And while inventories are at a seven year low, in terms of month of inventory it is still at historic high territory. New home manufacturing should be low, that’s how inventory can get worked off.

My take, though, is that there is way more inventory than the existing data shows. First, the banks are holding inventory and so there is pent up supply there. The larger pent up supply, in my opinion, is of people who would like to sell their home but don’t have it listed for sale because they are waiting for prices to rebound (foolishly), or they had their home listed and pulled it from the market or are RENTING out a home they otherwise would have preferred to sell. This is especially true in the middle to upper middle homes.

What is it, exactly, that would lead analysts to make statements like they believe sales are going to begin picking up? Its spring and they are still falling. What happens when we get past spring? I believe in freedom of speech, but I have to tell you that this type of “analysis” should be outlawed, and that’s all you’ll hear from all the people who have an interest in pumping up the market, from the homebuilders, to their NAR lobby, to the bankers, to the media who also profit from selling ads to the aforementioned. What a system, there’s no one in it to protect you and that includes your government who receives their campaign money from the same corporations.

Can’t we cut the crap?

"Hey man, don't bring me down!"

The Animals – Don’t Bring Me Down (1966):