New Home Sales Dive to Record Low (DHI, KBH, LEN)

New Home Sales Dive to Record Low

Yesterday brought news of exisiting home sales falling to the lowest level in a decade. This morning was new home sales' turn, and the news was hardly better.

New home sales in July fell to the lowest level on record, down 12.4% from June, and 32.4% from July 2009. For those who like viewing this stuff in graphical form, here's a nice chart from the finance blog Calculated Risk:

As was the case with existing sales, the culprit that's slaughtering new sales is the expiration of the first-time homebuyers credit. Pay someone to buy a home, and they'll rush to meet the deadline. All that did was supercharge sales earlier this year by cannibalizing future sales, which is the hangover we're dealing with now.

With new home sales, one risk is that the artificial demand created by the housing credit gave homebuilders like KB Homes (NYSE: KBH ) and Lennar (NYSE: LEN ) a false sense of hope, leading to a glut of unnecessary construction. Earlier this year, D.R. Horton's (NYSE: DHI ) CEO warned that his company would be "focusing on reducing our inventory post March to comply with the expiration of the tax credit."

As scary as these numbers are, don't read too much into them. Yale professor and housing godfather Robert Shiller called yesterday's figure "anomalous" due to the credit's expiration. Last month, when new home sales were much stronger than this month, a quote from the Wall Street Journal summed the situation up nicely: "The last time we were running these kinds of numbers was the 1982-1983 recession, when we had 100 million less people." These numbers are ugly, but hardly sustainable.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.

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Report this Comment On August 25, 2010, at 11:59 AM, iPixel wrote:

As much as the end of the tax credit definitely and significantly help drop the housing sales numbers. We cant forget that it's not the only culprit behind this issue. I feel that many many people are simply holding off and hoping, trying, praying to save up a larger amount of money for a down-payment rather than going with what they've got. I agree with Robert Shiller on this issue being "anomalous", and it will definitely pick up. That's my 2 cents.
Report this Comment On August 26, 2010, at 8:08 AM, Melaschasm wrote:

The most surprising thing about the housing numbers is that people are surprised.
Report this Comment On August 26, 2010, at 9:09 AM, iPixel wrote:

Hah! Great point Melashasm!
Report this Comment On August 26, 2010, at 2:55 PM, RaulChapin wrote:

"The last time we were running these kinds of numbers was the 1982-1983 recession, when we had 100 million less people"
As my economics teacher would say... Interesting, but irrelevant.
The total population alone would have a minor effect in new house purchases, the rate of increase in the population would be far more significant. (On the purchase and sale of existing homes it would be a more significant number as a larger population will require more house swaping transactions, but not necessarily require increasing the size of the inventory through new homes)
The changing demographics would be more significant, how many kids are becoming house buying adults and how many adults are off loading homes because they can no longer live by themselves.
Immigration would also be an important factor.
A declining economy might mean immigrants would choose other destinations.
Most of the economic growth in the USA is expected (or should be expected) to come from non-labour-intensive industries, which also means less need for population growth.
Increased border security means potentially less illegal immigrants (not necesarily going to buy a house, but will rent. As they are gone, rents would go down, making buying a house less appealing)
So just because these numbers have not been seen since the 80s it does not mean that they are unsustainable. Sure there are temporary factors that make the numbers worse... the big question is: What will be the new normal?
I am willing to bet that it will be closer to the 600,000 mark than it would be to the 1,400,000.

updated 5 hours ago Sponsored by:
	DOW	12,454.83	-74.92	-0.60%
	S&P 500	1,317.82	-2.86	-0.22%
	NASD	2,837.53	-1.85	-0.07%

LEN	$28.20		-0.06	-0.21%
Lennar Corp		CAPS Rating:

KBH	$7.74		-0.09	-1.15%
KB Home		CAPS Rating:

DHI	$17.01		-0.14	-0.82%
D.R. Horton, Inc.		CAPS Rating:

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New Home Sales Dive to Record Low

Comments from our Foolish Readers

Report this Comment On August 25, 2010, at 11:59 AM, iPixel wrote:

Report this Comment On August 26, 2010, at 8:08 AM, Melaschasm wrote:

Report this Comment On August 26, 2010, at 9:09 AM, iPixel wrote:

Report this Comment On August 26, 2010, at 2:55 PM, RaulChapin wrote:

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