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Summary
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" narrative. 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. http://seekingalpha.com/article/2776...ew-home-sales- tank |
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