Wikinvest Wire

New home sales disappoint

Wednesday, October 28, 2009

"Flatline" appears to be the operative word for the homebuilding industry these days as sales levels remain near historic lows amid fierce competition from banks where the supply of distressed sales coming onto the market continues unabated.
IMAGE The Census Bureau reported(.pdf) that new home sales unexpectedly declined last month, from a downwardly revised annual rate of 417,000 in August to 402,000 in September.

On a year-over-year basis, sales were down 7.8 percent and, from the peak of the residential construction boom back in mid-2005, sales are down 71.1 percent.

More importantly, current levels of home construction and sales remain near historically low levels, first reached in January of this year, and this bodes ill for a sustainable economic recovery where residential construction normally plays a major role.

Last week's report on housing starts showed a similar trend in recent months.

As noted here many 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 improvement of recent months, new home sales would have to rise another 15 percent just to get back to the previous record low!

While there has clearly been 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.

Inventory remained at a 7.5 months supply in September, down significantly from earlier this year but still about 50 percent higher than normal, and the total of 251,000 unsold new homes is the lowest in 27 years, a confirmation of just how low current sales levels are.

It looks to be a long and difficult road to recovery for the homebuilders, particularly in light of the expected waves of foreclosures that are expected to come in the next year.

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Real estate in GTA said...

Government solution to this weakening trend in the house sell market is clear. They’ll renew the credit for homebuyers, maybe even increase the risk on the amount buyers get. Which will really annoy folks like me who took advantage of the original offer.
Let's see what will happen


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