The panglossian hopes of those who thought the housing situation might be stabilizing were dashed again when the Census Bureau announced that New Home Sales fell to a seasonally adjusted annual rate of 604,000. This was far below the consensus expectation of an annual rate of 645,000. In addition, the November new home sales figure was revised down to 634,000 from an originally reported 647,000.
The new home sales figures have very wide margins of error and are subject to large revisions. Over the last two years or so, those revisions have been overwhelmingly been downward, so there is a very real possibility that as bad as the current situation looks, the reality may be even worse. Based on the revised numbers, nationwide housing sales were down 4.7% for the month (down 6.6% from originally reported), and down a whopping 40.7% year over year.
Regionally, there was a fair amount of disparity for the month. The bright spot was in the Northeast where sales were actually up 6.0% for the month, but were down 27.4% year over year. The Midwest was not too hard hit this month, down only 1.2%, although it has been devastated on a year-over-year basis, down 55.8%.
However, all regions are not created equal when it comes to housing sales. Together, the Northeast and the Midwest accounted for only 22.0% of all housing sales in December. The all important South region (54.6% of total sales) was down 6.5% for the month and 36.3% on a year-over-year basis. The West (23.3%) was down 6.0% for the month and is down 42.9% year over year.
Those looking for a silver lining in this category five hurricane-sized dark cloud might point to the drop in inventories to 495,000 from 502,000 last month and 535,000 a year ago. However, sales are dropping far faster than inventories, leading to a rise of months supply on the market. Currently there are 9.6 months of supply at the current selling rate, up from 9.4 months last month and 6.2 months a year ago.
Even a close look at the raw numbers (as opposed to months supply) does not lend much comfort. New home inventory consists of three parts: not started (basically improved lots), under construction, and completed. While overall inventories are down 7.5% from a year ago, that is made up of a 5.1% drop in not-started homes, a 20.4% decline in houses under construction, but a 12.1% increase in finished home inventories.
Also noteworthy in this report was the sharp fall in prices. The median new home price was $219,200, down 10.4% from a year ago. The average (mean) price was $267,300, down 11.5%. Partially this is a function of sales of McMansions (new homes over $500,000) falling off a cliff, down 66.7% from a year ago. Sales of move-up homes ($200,000 to $499,999) are down 36.1%, while sales of starter houses (under $200,000) are down 36.0% from a year ago.
The troubles of the housing industry are clearly not over yet and I would continue to advise avoiding (or shorting) home builders like Beazer (BZH), Lennar (LEN), D.R. Horton (DHI), Toll Brothers (TOL), Standard Pacific (SPF), Hovnanian (HOV), Centex (CTX), KB Homes (KBH), M/I Homes (MHO), Ryland (RYL) and Pulte (PHM). Also avoid firms tied to the mortgage industry such as Washington Mutual (WM), First Fed (FED), and MGIC (MTG).
