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New Home Sales Tumble

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By RodgerRafter
December 23, 2004

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More evidence that the housing market has peaked and is on the way down:
http://www.census.gov/const/newressales.pdf

Nationwide, seasonally adjusted home sales dropped 12.0% from October to November.
Regionally, the pattern is consistent with the slowdown in starts:
Region.........Sales.......Starts.....Q3 Rental Vacancy Rate
Midwest.....-39.4%....-19.4%........12.3%
West..........-27.9%.....-13.2%.........7.6%
Northeast....-7.1%......-14.2%.........7.9%
South........+13.6%.....-10.4%........12.3%


The big builders may have observed the national slowdown in sales and cut back on starts everywhere. Oversupply may be the worst in the Midwest and South.

Homes for Sale reached a new high at the end of November at 418,000, up 14.5% on the year. "Months of Supply" reached a new high of 4.5. Do you think the supply and demand equation might have tipped?

Median sales prices dropped to their lowest levels since December '03. Average sales prices dropped as well, but remain slightly above the the average prices for the past 12 months. This implies that more high priced homes were sold, however the percentage of sales of homes priced in the:

$250-$300K range fell from 12% to 9%.
Over $300K range fell from 30% to 29%.

The only way I see to reconcile all this is to assume that sales of super expensive homes rose significantly as a percentage of total sales and cushioned the drop in average sales prices.

On average, homes are being sold later in the construction process. Of the 99,000 new homes sold in October and 81,000 sold in November (gee, those numbers don't sound so impressive when they aren't annualized):

Stage........................October....November
Not Started................38,000.....33,000
Under Construction....41,000.....25,000
Completed.................20,000.....23,000

However, of the 424,000 homes on the market, a greater percentage haven't been started, possibly suggesting a rush to get homes sold before the collapse:

Stage........................October....November
Not Started.................68,000.....80,000
Under Construction...251,000...252,000
Completed..................94,000.....92,000

It could also possibly reflect the increase in permits relative to starts which Splotto explained as an increase in "unstarted" homes where the foundation had been poured but nothing had not been built upon it.

All the trends in the November reports seem to be very negative for the housing sector. Of course homebuilders are down on this news, but not as much as they should be. We should expect disappointing results from the group going forward. The same goes for related industries like mortgage finance services.

The dollar dropped like a rock when the new home sales report came out, with the Euro hitting a new all time high, but the stock market is following a different set of rules with Santa Claus in charge. Eventually, the stock market will take notice, however. The housing boom has been the number one reason for the surge in the markets over the past 2 years, and the signs of a slowdown construction and sales and related contraction in credit are becoming more obvious every day.

If this New Home Sales report caught you by surprise, then you obviously haven't been paying attention and doing your Mish board homework:

http://boards.fool.com/Message.asp?mid=21795931
http://boards.fool.com/Message.asp?mid=21769051&sort=whole


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