New Home Sales and Bear Market Math

One can't help but laugh at headlines touting a huge 23.% jump in new home sales given that the "jump" was to the second worst month in history, dating back to 1963.

Dave Rosenberg puts the headline jump into perspective in Housing Data Are Not Supportive.

Market sentiment is positive and as a result of the market going straight up, people believe that the economic data are somehow getting better. Not the case at all.

April new home sales were revised DOWN to a 422k annual rate from 504k when the data for the month were first released. You know what that means? It means that the homebuyer tax credit was even a bigger dud than we thought it was previously. No bang for the buck from these spending gimmicks.

May new home sales were revised DOWN to 267k units from 300k. That sure puts a 23.6% "jump" to 330k into perspective, doesn't it? It's called bear market math.

At 330k in June, this goes down as the second worst month on record (data back to January 1963). And in per capita terms it is far worse than that considering the population has expanded 63% since then.

Now, if we take the original unrevised number for April, the unrevised May data-point, and the June consensus estimate of 310k, then the average of the past three months would have been 371k. But post-revisions and with the actual June print, sales have averaged 340k at an annual rate.

That puts the data into proper context. We are actually left with a weaker three-month profile of home sales after the release of the data yesterday, not the opposite. Also, it took a median of 12.4 months for the builders to locate a buyer upon completion – a record for June.

The unsold inventory number was also revised sharply higher in May and because of that, the backlog looks so much better now – from 9.6 months' supply to 7.6 months'. Even so, a well-balanced market, as any real estate agent will tell you, is 5-6 months' supply.

Maybe this is why the average sales price was cut 9.8% MoM in the third steepest month ever in terms of discounting. At $242,900 for an average price of a new home sold, this represented the lowest number since October 2003 and off 26% from the 2007 peak.



But just think about that for a second. The third largest price cut in history managed to generate the second worst new home sales tally on record. This is something to get excited about?

Given that housing leads recoveries (more specifically housing starts followed by new home sales), this is another nail in the coffin that suggests there has been no recovery except in financial assets. Moreover, that financial recovery is only a result of unsustainable stimulus that is now quickly fading into the sunset.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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