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New Home Sales Data Belies Continued Weakness; Don’t Be Fooled

Posted on | October 27, 2008 Time: 10:44 pm |

Several media outlets are presenting today’s new home sales data as a positive, as September sales rose to an adjusted annualized rate of 464k, and 2.7% from August levels. But besides being unreliable (the rise was primarily based on a downward adjustment to the Aug. numbers), new home sales - when adjusted for population growth - are on pace to record their worst year on record, as pointed out in a nice post over on Calculated Risk:

Sales by region were extremely volatile; the West rose by 23% after dropping that much in the prior month. But sales in the Northeast reached a 35-year low, while Midwest sales hit a 17-year low. Overall, new home sales are down 33% from 2007 levels and over 50% from the peak of 1 million plus homes in 2006.

The only minor bright spot was a 7% drop in home inventories, but we still have over 10 months of inventory, which must also contend with still-rising levels of existing home inventory thanks to record foreclosures and rising unemployment.

The bottom line is: don’t be fooled into thinking we’re seeing any kind of a bottoming process occurring. With inventories more than twice as high as historical averages, the supply part of our crucial balance is still in “statistical outlier” territory. Median home prices are still on the decline, and the most recent $218k median is only a four year low. Consider the depth and breadth of the housing bubble, and it’s hard to reason that a four-year low in prices reflects the woes of the market. Equity prices are at decade-lows or worse. I wouldn’t be surprised to see the median average drop below $200k before we see signs of a true bottoming process. That, combined with inventory below 5 months’ worth would be two good signs that the trend could finally be changing direction.

Ryan Barnes

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Read more on New Home Sales at Wikinvest
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Category: Economic Indicators, Housing
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