Saturday, 29 December 2007

US New Home Sales Plunge in November

Inspired by the great work of Calculated Risk I've tried to come up with some pretty graphs of my own for Housing related posts. Sales of New Homes in the US plunged in November falling -9% from the previous month. Also as expected downward revisions were made to August, September and October.

(click on any of the charts below for a sharper image)

From the US Census Bureau:

Sales of new one-family houses in November 2007 were at a seasonally adjusted annual rate of 647,000... This is 9.0 percent below the revised October rate of 711,000 and is 34.4 percent below the November 2006 estimate of 987,000.

The SAAR for November Sales has not been this low since 1994 (646k) and subsequent revisions could send it considerably lower.

The seasonally adjusted estimate of new houses for sale at the end of November was 505,000.

As Calculated risk has pointed out numerous times in the past Inventory numbers do not include cancellations - and cancellations are at record levels meaning inventories are probably significantly higher than reported. Calculated Risk's estimate is about 100K higher.

This represents a supply of 9.3 months at the current sales rate.

Whilst the number of new homes for sale has declined, the months of supply ticked up as the sales rate continues to fall. How about those revisions? November Revisions were as follows:
  • August 717k - 701k -2.2%
  • September 716k - 699k -2.3%
  • October 728k - 711k -2.4%
Now remember the original estimate for August's was for a seasonally adjusted annual rate of 795k which means subsequent revisions have sent that estimate -11.8% lower. September's estimate was originally 770k, so that estimate has been revised a further -9.2%. Thus New Home Sales have been consistently overestimated in the downward leg of this cycle.

The chart below tracks New Home Sales and Recessions over the past 40 years. As you can see a significant housing downturn is not a pre-requisite for a recession (1969-70 and 2001) , however every time there has been a significant housing downturn a recession soon follows.

Whilst this single data point is not conclusive evidence of an impending recession, the magnitude of this housing downturn (the biggest in US history) makes the argument all the more compelling.