US New Home Sales Revised Sharply Lower

There was a plethora of silly comments and headlines about yesterday's New Home Sales numbers in the US. Here is an example from marketwatch.com

Builders slash prices to boost October sales

Builders slashed prices at the fastest pace in 26 years in October, boosting sales of new homes from a much lower level of September sales than was originally reported

Now if you read that you come away thinking that slashing home prices in October led to higher sales. However as the article goes on to note:

September's sales pace had originally been reported as 770,000. August's sales were also revised sharply lower to 717,000, down from 735,000 estimated a month ago and from 795,000 estimated in the first release.

As predicted last month a sharp downward revision to September numbers were made and if you go back further than two months you will see that every month since the beginning of summer has been revised lower. Not to mention that the large revision to August last month was not quite large enough and was downwardly revised again. Also consider that there is a 10% standard error in the last reported month's numbers.

What that means of course is that October sales will more than likely be revised down below that of September when November figures come out and so slashing prices didn't 'boost' October sales. The headline should probably read 'slashing prices cushioned plummeting sales.' Also of interest in yesterday's report:

Sales are down 23.5% in the past year -- a vivid reflection of the carnage in the home-building industry.

And over the past five months, sales have been on a 751,000-unit annual pace, 25% slower than a year earlier. In 2006, 1.05 million new homes were sold.

Meanwhile, the September-to-October median sales price fell 8.6% to $217,800 -- the biggest monthly price drop in 26 years. Median sales prices are down 13% in the past year, marking the biggest year-over-year decline in 37 years....

The Commerce Department said the inventory of unsold homes fell 6.7% to 516,000, representing an 8.5-month supply. The inventory peaked at 9.3 months in August.

On the plus side at least inventory levels fell for the second month from their August peaks. However taken together with existing home sales they have hardly made a dent in the backlog of homes on the market.