First the spin from Marketwatch:
U.S. stocks rallied on Thursday, as the market cheered an unexpected surge in new home sales, along with signs of a pick-up in business spending, which helped offset concerns about homebuilder Toll Brothers and a warning on Chinese stocks from former Fed Chairman Alan Greenspan.
Now the data from the Census Bureau:
Sales of new one-family houses in April 2007 were at a seasonally adjusted annual rate of 981,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 16.2 percent (±13.0%) above the revised March rate of 844,000, but is 10.6 percent (±11.8%)* below the April 2006 estimate of 1,097,000.
The median sales price of new houses sold in April 2007 was $229,100; the average sales price was $299,100. The seasonally adjusted estimate of new houses for sale at the end of April was 538,000. This represents a supply of 6.5 months at the current sales rate.
Here’s what this means:
Don’t buy the spin- sales are DOWN– sales typically rise month-over-month this time of year. As temperatures rise in the spring, so do home sales- it is important to compare the year-over-year data as this is the more significant comparison.
Also note the margin of error– with ±13.0%, there’s not a lot of confidence in this number. month’s sales number was revised down 16%, even though the margin of error was ±12.9%.] Also it is important to keep in mind that this number does not include cancellation[Last s. [For example, Toll Brothers was celebrating their much improved 19% cancellation rate this morning]
Here’s the graph:
New home prices are tougher to spin- Marketwatch just left the numbers off. Home prices were down significantly however, 11% year-over-year, . New home prices were at their record peak in April of 2006. It is important to remember that these prices include significant incentives by homebuilders. It is to be assumed that in actuality new home prices have dropped more than this.
These sorts of declines have huge implications for the lending industry as well. Consider the case of a prime borrower who purchased a home last year with a sensible 30 year fixed, 10% down loan. This buyer, likely as not, is currently in a negative position on their mortgage- a risky proposition for any borrower who is unable to remain in their home long term, and thus at risk of default or short sale should they need to sell.
And as for inventory-
The Census Bureau is reporting that inventory is down. There were 538,000 homes reported for sale in April 2007, down from March’s 545,000 for a decline of 1.3%. However, once a buyer cancels a home, the rush to complete the unit has diminished, and the pace of construction slows. It is interesting to note that the Census Bureau [in a different report] reports that the number of units under construction was up in April- up 1.3%, so don’t worry, we won’t be running out of new homes any time soon.
It’s getting tougher to sell the spin, in spite of the media’s best efforts. While Wall St. rallied after the initial housing headlines, stocks started declining after traders started READING the report:
Investors were originally enthusiastic after the Commerce Department reported sales of single-family homes increased 16.2 percent last month, after falling slightly in March. However, sharp gains across all three major stock indexes vanished after investors considered that the median price of a new home sold last month fell by 11.1 percent — its largest ever decline.
Conclusion- there is no way, no how this market is in a position to recover in 2007. Continued high inventories, low buyer confidence and tightened lending standards are going to play havoc with this market for awhile.