January New Home Sales Plummet 16.6%

A positive uptick in December's U.S. new home sales had many economists thinking turnaround. But January's 16.6% decline, from 1.12 million to 937,000 homes sold (the lowest since 1994 and 20% lower than Jan. 2006), seems to indicate otherwise. Sales fell in all regions, with the West (-37% to 166,000), Northeast (-18.7% to 61,000) and South (-9.7% to 529,000) hardest hit. New home sales give a truer sense of the housing market as they're only recorded upon signing, but they don't reflect cancellations. The median new home price fell 2.1% to $239,800 from $244,900 in January 2006. While economists argue whether January sales are a trend or an anomaly, clearly more price cuts will be needed to move inventory, which rose 19.3% from January 2006. It takes about 6.8 months to sell each new house on the market now. Inventory of completed but unsold homes rose 47% from last year. Builders are cutting down on production, from 336,000 to 277,000 currently under construction, but the lack of building activity hurts the general economy, reflected in Home Depot's lower earnings and sales forecast yesterday.

Sources: Bloomberg , NY Times, The Street, Market Watch
Commentary: Short Plays for More Housing Market Weakness • Housing Bubble and Real Estate Market Tracker • Housing Slowdown Hitting Other Industries With a Lag
Stocks/ETFs to watch: Toll Brothers (TOL), D.R. Horton (DHI), Centex (CTX), Lennar (LEN), KB Home (KBH), Hovnanian (HOV), Beazer Homes (BZH), Pulte Homes (PHM), MDC Holdings (MDC). ETFs: iShares Dow Jones U.S. Real Estate Index (IYR), iShares Dow Jones U.S. Home Construction (ITB), PowerShares Dynamic Building & Construction (PKB), SPDR Homebuilders (XHB)

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