Mixed Housing Report

New home sales fell just 0.6% in March from an upwardly revised February sales pace. However, at a seasonally adjusted annual rate of just 356,000, it was still the worst March since records of new home sales started in 1962.

Nationwide, on a year-over-year basis, new home sales are down 30.6% -- and remember the slide in new home sales did not start a year ago. From the peak in mid-2005, new home sales are down almost 75% (see graph below; larger version available here. ).

Regionally the results were very mixed (the regional numbers have extremely large standard errors, so take all of them with a grain of salt). In the Northeast, sales plunged 32.1% for the month, and were down an identical 32.1% on a year-over-year basis. At the other end of the spectrum was the West, where sales were up 15.1% for the month, but are down 31.1% on a year-over-year basis. In between were the Midwest (-7.8% for the month and down 32.9% year over year) and the super-important South region (0.0% for the month and -29.7% year over year). In March, the South represented 57.9% of all new home sales.

Perhaps the best news in the report is the decline in inventories, which were down 5.2% on the month and are down 33.7% on a year-over-year basis. This drove the months supply down to 10.7 months from 11.2 months both last month and a year ago.

As shown in the second graph (also from http://www.calculatedriskblog.com/), this is the first time the months supply has been lower on a year-over-year basis since before the bubble started to burst. It now appears that January’s 12.5 months may mark the peak in this very important metric.

On the other hand, the months supply figure is still near the worst levels ever seen before the current downturn. This is happening with mortgage rates near historical lows, rather than in the high teens where they were in the 1980 and 1982 peaks of months supply.

There was mixed news on the pricing front. The median price fell 3.5% on the month to $201,400, but was down 12.2% from $229,300 a year ago. The average price (mean) was up 1.1% to $258,000 on the month, but down 10.3% from the $287,600 level a year ago. Some of this is due to the mix of houses being sold.

Both starter houses (less than $200,000) and McMansions (over $500,000) gained as a percentage of houses sold at the expense of the move-up home market for the month. In March, starter homes represented 49% of all houses sold, up from 45% in February. McMansions represented 8% up from 7%, while the move-up segment plunged to 43% from 49%. A year ago, starter houses represented just 37% of the market, while move-up houses represented 54%, with McMansions at 9%.

While it is certainly welcome news to see the months supply start to fall -- and for the market to hold above its disastrous January level of just 331,000 houses sold -- we are far from out of the woods on the housing front. New home sales are typically what leads the economy out of a recession (see first graph again). So far we are seeing a stabilization at best, not a rebound.

There is another huge wave of foreclosures coming as the moratoriums were lifted at the end of March. These will find their way back onto the market and will continue to provide very stiff competition for new houses. At this point, I would simply ignore the major homebuilding stocks like Lennar (LEN) and D.R. Horton (DHI), neither buying them nor shorting them.

Until the supply figure gets down to a more normal level of six to seven months, there is really no reason to see an upturn in construction activity. This means that there is no real upturn in sight for the major suppliers to the housing market, such as lumber companies like Weyerhaeuser (WY) or other major suppliers like Masco (MAS) and Fortune Brands (FO).

All in all this was a mixed report on housing. It was not the disaster that we have become accustomed to seeing, but it was not the huge positive surprise like we saw in the February report.

--Dirk van Dijk

Comments

[HardwoodFlo...:]

Love the graphs. They are fantastic. The second one is a bit distorted however. the truth is that there is something liek 3.5 million units (9.5 Months of supply). The reason this graph looks so distorted is that sales of houses suck. They are at an annulized rate of 4.5 million which is very low. If they got back to normal say 8 million units we would have jsut a couple fo months of housing supply.

It's like all this info get so masterbated it's insane. Here int he midwest things are really changing- and that's all I ahve to say abou that- wiat for the april housing figures form the mid west. the sales of existing home is going to be impressive. the building will be up and the remodel numbers throught the roof. Don't take my word for it but please wait until the information comes out before you comment or harass my comment. Just wait two weeks for the data on home sales, build, and remodel comes out of the mid-west. Ithink everyone is going to be very sruprised.

Apr 26 10:25 AM

[PASTOR TOM:]

And what about the "Shadow Inventory" of REOs, and those owners who are waiting for some sign of increased sales prices to put their properties on the market?

Also, don't forget the upcoming foreclosures that RealTech is forcasting?

9 months inventory? 18 months inventory? or lets wait and see what happens. The LORD has it all planned.

Apr 26 04:19 PM