Friday, 26 October 2007

A bottom in New Home Sales?

From the US Department of Commerce report:

Sales of new one-family houses in September 2007 were at a seasonally adjusted annual rate of 770,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.8 percent (±10.3%)* above the revised August rate of 735,000, but is 23.3 percent (±8.0%) below the September 2006 estimate of 1,004,000.

The median sales price of new houses sold in September 2007 was $238,000; the average sales price was $288,000. The seasonally adjusted estimate of new houses for sale at the end of September was 523,000. This represents a supply of 8.3 months at the current sales rate.

90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.

So do we have at least a tentative rebound in New Home sales? Not so fast. Firstly the revision to August was significant, previously estimated at 795,000 revised down to 735,000. Secondly as highlighted above with a 10% standard error, like the non-farm payroll data, the monthly data is quite unreliable. Note that every month in summer has been revised downward, so September sales will almost certainly be revised downward next month.

There were actually 60,000 new homes sold during September, that is the lowest September number since the 54,000 sold in 1995. Also remember the figures do not account for cancellations, which as you can see below, surged in the September quarter.

Centex (CTX) 35%
MDC Holdings (MDC) 57%
KB Homes (KBH), 50%
Lennar Homes (LEN) 32%
D.R. Horton (DHI) 48%
Beazer Homes (BZH) 68%
NVR (27%)

An apt summmary of the figures came from Richard Moody, chief economist for Mission Residential.
"Take this one with a large truck load of salt,"

CNN Money also put the latest figures into perspective with these comments from David Seiders of the NAHB.

David Seiders, chief economist for the builders' trade group, said Thursday that the latest report has some questionable readings, including a 38 percent rise in sales in the West, which he expects will be revised significantly lower in subsequent months. Without that reported increase, sales would have fallen from the already weak revised level in August.

Seiders also pointed out that the report does not capture cancellations by buyers who were unable to get financing or had to pull out of sales because they couldn't sell their homes.

"We saw an upsurge in cancellations in August and September, according to all the builders," he said. "The net sales, if we could get that number, would clearly be weaker than this. It's too early to get hopes up on this report."

On prices Seiders had this to say:
"These price numbers are just about useless," said Seiders. "Price cuts are widening and deepening. We know that."

So no reason to get excited about a housing bottom yet. Surprisingly the voices of the bottom callers was notably absent. The reality that home sales are not going to get better anytime soon seems to be generally accepted.