Is the Government Lying About the Housing Recovery?

While the Commerce Department recently said that new home sales are soaring, data from the private market suggests otherwise. Does this mean the Obama administration is lying?

Mar 9, 2014 at 12:24PM

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The housing recovery is stalling. No, even worse, it's going in reverse.

Housing starts fell by 16% in January over the previous month. Existing home sales are at the lowest level in 18 months. And even home prices dropped on a sequential basis in December.

To be fair, there are positive signs as well. According to the Commerce Department, new single-family home sales are at the highest level since July of 2008. And, according to a separate report issued this week, pending home sales climbed 0.1% in January.

In case you're wondering how to reconcile all of this, let me throw one more thing into the pot. The table below shows quarterly net new contracts at four of the nation's largest homebuilders for the most recent reporting period.

Company

4Q13 Net New Contracts*

4Q12 Net New Contracts*

Change

D.R. Horton (NYSE:DHI)

5,454

5,259

4%

Toll Brothers (NYSE:TOL)

916

973

(6%)

Hovnanian Enterprises (NYSE:HOV)

1,202

1,344

(10.6%)

PulteGroup (NYSE:PHM)

3,214

3,926

(18%)

*I'm referring to the calendar quarter, not these companies' individually selected fiscal quarters. Moreover, while Hovnanian and Toll Brothers' quarters track the calendar year, PulteGroup and D.R. Horton ended their most recent quarters on Jan. 31, 2014. Source: Company filings.

As noted in the caption under the table, these results aren't exactly apples to apples. This is because D.R. Horton and PulteGroup's figures relate to the three months ended December 31, whereas Hovnanian and Toll Brothers' span the quarter ended January 31.

That aside, the general trend is clear. Despite the Commerce Department's latest report on new home sales, the data in the private market suggests the situation is more dire.

"While our first quarter is always the slowest seasonal period for net contracts, the strong recovery trajectory from the spring selling season of 2013 has softened on a year-over-year basis," said Ara Hovnanian, chairman and chief executive officer of Hovnanian.

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He went on to note, "In addition to the lull in sales momentum, both sales and deliveries were affected by poor weather conditions and deliveries were further affected by shortages in labor and certain materials in some markets that have extended cycle times."

And according to Douglas Yearley, the CEO of Toll Brothers, "As we have previously discussed, after very strong contract growth beginning in the fourth quarter of FY 2011 and running through the third quarter of FY 2013, demand has leveled more recently against some very strong prior year comparisons."

Now, it's worth noting Hovnanian and Yearley's counterparts at PulteGroup and D.R. Horton are much more optimistic about the state of the market. But, at least in the former's case, it's hard to see why, given PulteGroup's severe contraction in net new contracts in the final months of last year.

The point here is the plurality of evidence seems to contradict the Commerce Department's latest report on new home sales. Does this mean the government is lying? I highly doubt it. However, it does mean both investors and prospective homesellers should prepare for a subpar spring selling season.

Hopefully this doesn't end up being the case. But as the old adage goes, "one should hope for the best, and prepare for the worst."

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