November new home sales well below market expectations.
Underlying data show market even weaker than headline report.
Massive May-November downward revision sabotages the "recovery"
The Census Bureau released its new home sales report for
November, which showed a decline for both the year over year and
monthly comparisons. The headline-reported 438k (seasonally
adjusted, annualized rate) missed the consensus Wall Street
analysts' forecast of 460k and it was below the lowest forecast
of 440k. While the headline numbers were well below what the
market was expecting, an examination of the underlying detail
from the report shows a market that is much weaker than
previously reported by the Census Bureau. In addition, this
report reinforces the conclusion drawn from the existing home
sales report that the housing market continues to contract.
While the headline-reported new home sales were worse than
expected, the underlying data reflect an even weaker housing
market (all data is from the link at the top). First, it would
appear that new homebuilders slashed their prices, as that
average sales price of $321k was 14.4% below the average sales
price ($375k) for October. Please note that this price does not
include hidden incentives or free upgrades. As an example, I saw
letter a sent out to higher end homeowners in the
Phoenix/Scottsdale area from Toll Brothers (NYSE:TOL) which was
offering up to $2,000 in travel expense reimbursement if the
recipient traveled to Arizona to buy a new Toll home. In other
words, the average price reported by the Census Bureau is the
price posted in the contract that is signed and does not reflect
discounts and incentives which can knock the final closing price
even lower. Clearly, in my view, if the average price of new
home has dropped over 14% in one month, it reflects a market
characterized by increasing supply and decreased demand.
In terms of supply, as I referenced in my article on the
November existing home sales report, the inventory level of
every new homebuilder I look at has been increasing every
quarter for the last three years. In fact, most of them are now
carrying inventory that was as high as their inventory in 2005,
at the peak of the bubble (on unit sales that are 1/3 the 2005
level). As confirmation of this, and although I believe the
Census Bureau report - which is based on data samples -
understates the true level of new home inventory - today's new
home sales report shows that inventory in terms of months'
supply jumped 16% year over year from last November. Again, I
would argue that this datapoint, combined with the 14.4% plunge
in price, reinforces my view that the demand component of the
housing market is quickly contracting.