More on US Home Sales

US existing home sales for April declined 2.6% to a seasonally adjusted annual rate of 5.99 million, the lowest level in 4 years whilst inventory of unsold homes increased 10.4% to 4.20 million, an annualised 8.4-month supply, the largest supply in 15 years. Consensus was for flat sales.

That is at odds with the previous days' data on new home sales which showed a 16.2% increase in sales and a contraction in inventory from 8.1 months to 6.5 months.

Again we should be wary of reading too much into volatile housing numbers. Anyway here is some food for thought courtesy of THE BIG PICTURE regarding the upbeat new home sales data:

Another Look at New Home Sales

As we wait for the 10:00 am Existing Home Sales Data (I will be on the beach by then) let's have yet another look at the New Homes numbers from yesterday.

Last night, Larry derided our very straight forward analysis of New Home Sales as "tortured logic." As noted yesterday, Homes are not impulse purchases, and double digit single month gains are highly aberrational, typically followed by mean reversion.

If that analysis is not to your taste, consider these other factors:

• The 16.2% jump in April sales was the biggest in 14 years -- as Bill King noted, that should’ve triggered warning bells immediately.

• The rise in sales were due mostly to a "35% surge in ‘homes not yet started.’ Completed home sales were virtually unchanged m/m (31k from 30k).

• About 2/3 of April sales were for homes priced under $300,000.

King's most damning observation about April's New Home Sales data is based on the most recent few years of April data: They ALL have all been dramatically revised downwards:

-April 2006 New Home Sales were initially reported as +4.9%, but were later revised to a
DECLINE of 2.6%.

-April 2005 was initially reported as +0.2% but was later revised to a DECLINE of 5.1%.

And finally, King asks, "How is it that the ‘bad weather’ that diminished retails sales did not affect new home sales?"

I think we already know the answer to that one . . .

I would add that in addition to the 2/3 of homes selling for less than $300,000 the number of houses that sold for less than $150,000 almost doubled.

No doubt tightened lending standards are having some impact on sales, just how long that continues is a case of wait and see.