Sales of New Homes Rose..Inventories Fell
Good for New Homes..I still believe there are so much value built into those homes. New homes hold their value better on the market.
By JEFF BATER
December 27, 2006 3:45 p.m.
WASHINGTON — New-home sales climbed in November and inventories fell, a signal the slumping housing market might be stabilizing.
Sales of single-family homes increased by 3.4% to a seasonally adjusted annual rate of 1.047 million, the Commerce Department said Wednesday.
While sales were down 15.2% from November 2005, the 3.4% on-month increase was larger than expected and the third in six months. Sales were up 3.1% in September, up 4.3% in August, down 9.2% in July and down 2.1% during June.
“On net this is a positive report, suggesting stabilization in the housing market,” Lehman Brothers economist Michelle Meyer wrote. “The rise in demand and fall in supply suggests the imbalance is starting to correct.”
But contract cancellations blur the sales data, economists say.
“The Census Bureau counts a house as sold when the contract is signed,” Global Insight U.S. economist Patrick Newport said. “If a buyer has second thoughts and cancels the initial contract, however, Census does not readjust the numbers. As a result, sales are overstated and inventories understated for the month the house is initially sold. And when the house is eventually sold, sales are understated and inventories overstated. Lacking data on cancellations, it is impossible to tell if November’s estimates should be higher or lower.”
The average rate on a 30-year mortgage last week has held in a narrow range in recent weeks. Freddie Mac last week reported the lending rate at 6.13%, compared with 6.12% the week before and 6.11% two weeks earlier. On Oct. 26, Freddie Mac reported the weekly rate at 6.40%. The Mortgage Bankers Association Wednesday said a measure of mortgage loan application volume decreased last week by 14.2% to an index level of 555.8 from 647.6 recorded the week earlier.
By region, new-home sales last month rose 22.4% in the Midwest, 22.5% in the Northeast, and 19% in the West. Demand fell in the South, down 9.3%. Based on figures unadjusted for seasonal factors, an estimated 72,000 homes were actually sold last month in the U.S., down from 78,000 in October.
Goldman Sachs said the new-home sales report Wednesday suggests demand has touched its lowest level. “While this may end up being true, it is premature to draw this conclusion given the stabilization in long-term interest rates that has occurred in recent weeks and the sharp drop in mortgage applications reported by the Mortgage Bankers Association for the last two weeks,” a Goldman Sachs research note said.
New-home inventories slipped in November, down by 1.4% to an estimated 545,000 homes at the end of the month as builders go easy on groundbreakings; housing starts are 25.5% lower than a year ago, recent data show.
The housing sector is a big thorn in the side of the economy, which slowed in the third quarter to a 2% pace. The housing component of gross domestic product plummeted by 18.7%, which was the sharpest drop in 15 years and robbed GDP of 1.20 percentage points.
Surging demand in certain markets across the U.S. during the housing boom sent prices skyward and builders breaking ground. Sales peaked in 2005 and began receding, while inventories climbed, resulting in builders slowing down.
At the November sales pace of 1.047 million, it would take 6.3 months to exhaust the supply of unsold homes. While below October’s 6.7 months and the lowest level since 6.2 in May, the supply at the sales rate in November 2005 was a much smaller 4.9.
“Inventories are still at record high levels and need to be cut further to return to equilibrium,” Lehman’s Ms. Meyer wrote. “We look for new-home inventories to reach five months worth of supply by the end of 2007 as starts and sales level off.”
As inventories fell in November, the median price of a new home rose, climbing to $251,700 from $243,800 in October and $237,900 in November 2005. But Ms. Meyer wrote, “We look for further weakness in prices as homebuilders continue to slash prices to encourage sales.”
An important indicator suggests homebuilding hasn’t found a bottom — permits for future construction in November sank a 10th straight month.
“Until inventories are drawn down — and stronger sales will help do this — permits and starts will continue to fall,” Global Insight’s Mr. Newport said. “This means that spending on residential construction will also continue to drop. Our view is that one should expect residential construction to take about 1.4 percentage points off GDP growth in both the fourth quarter of 2006 and the first of 2007. Afterward, the bites will get progressively smaller.”
Write to Jeff Bater at jeff.bater@dowjones.com