Wikinvest Wire

New home sale rise from the depths

Monday, July 27, 2009

The Census Bureau reported(.pdf) an 11 percent increase in new home sales last month, the sharpest rise in eight years, as homebuilders attempt to mount a recovery from all-time record low sales levels earlier in the year.
IMAGESales rose from an upwardly revised annual rate of 346,000 units in May to 384,000 units in June, the highest level since last November. Interestingly, sales in March and April were revised downward, not upward, as might be expected during a market bottom.

Inventory decreased as sales rose, the number of new homes on the market dropping to 281,000, the lowest level since 1998, and the months of supply metric fell from 10.2 months in May to 8.8 months in June.

Though sales prices for new homes are heavily influenced by incentives and are often quite misleading, builders appear to be slashing prices, the median price plunging 5.8 percent in June to $206,200, now down 12.0 percent from a year ago.

Once again, it's important to maintain a proper perspective on this news and the most important bit of data is that home prices continue to plunge - clearly not a sign that the housing market is springing back to life.

There is good news, however, for homebuilders in that sales may now have bottomed and the outlook for their industry may improve further after sales reached historic lows earlier in the year, lows that make all previous declines pale in comparison.

As noted here months ago when all-time record lows were first being made, in population-adjusted terms, the current housing downturn is without precedent. The pre-2009 all-time low of 338,000 in September of 1981 works out to a population-adjusted rate of about 460,000 today, meaning that, even after the recent "surge" in new home sales, another 20 percent increase is required just to get back to the previous record low!

While there has clearly been steady improvement in new home sales in recent months, recent increases are akin to your favorite 2000 technology stock rising 8 or 10 percent during a few months in 2001 after plunging 80 percent in 2000.

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