New Home Inventory at Record Low. Economists React

By: Matthew Graham •

The Census Bureau and Department of Housing and Urban Development have released New Residential Sales data for April  2011.

New Residential Sales data provides statistics on the sales of new privately-owned single-family residential structures in the United States. Data included in the press release are (1) the number of new single-family houses sold; (2) the number of new single-family houses for sale; and (3) the median and average sales prices of new homes sold.

A house is considered sold when either a sales contract has been signed or a deposit accepted.   Included in our estimates are houses for which a sales contract is signed or deposit accepted before construction has actually started; for instance, houses sold from a model or from plans before any work has started on the footings or foundations.  These estimates also include houses sold while under construction or after completion.  This survey does not follow through to the completion ("closing") of the sales transaction, so even if the transaction is not finalized, the house is still considered sold. Preliminary new home sales figures are subject to revision due to the survey methodology and definitions used. The survey is primarily based on a sample of houses selected from building permits.

New residential sales estimates only include new single-family residential structures. Sales of multi-family units are excluded from these statistics.

Here is a Quick Recap from Reuters...

  • RTRS - US APRIL SINGLE-FAMILY HOME SALES 323,000 UNIT ANN. RATE (CONS 300,000) VS MARCH 301,000 (PREV 300,000)
  • RTRS - US APRIL SINGLE-FAMILY HOME SALES +7.3 PCT VS MARCH +8.3 PCT (PREV +11.1 PCT)
  • RTRS - US APRIL HOME SALES NORTHEAST +7.7 PCT, MIDWEST +4.9 PCT, SOUTH +4.3 PCT, WEST +15.1 PCT
  • RTRS - US APRIL NEW HOME SUPPLY 6.5 MONTHS' WORTH AT CURRENT PACE, LOWEST ONE YEAR, VS MARCH 7.2 MONTHS
  • RTRS - US APRIL MEDIAN SALE PRICE $217,900, +4.6 PCT FROM APRIL 2010 ($208,300)
  • RTRS - US HOMES FOR SALE AT END OF APRIL RECORD LOW 175,000 UNITS VS MARCH 180,000 UNITS

Excerpts from the Release....

Sales of new one-family houses in April 2011 were at a seasonally adjusted annual rate of 323,000.  This is 7.3 percent (±16.6%)* above the revised March rate of 301,000, but is 23.1 percent (±9.7%) below the April 2010 estimate of 420,000.

The median sales price of new houses sold in April 2011 was $217,900; the average sales price was $268,900. The seasonally adjusted estimate of new houses for sale at the end of April was 175,000. This is a record  low for new home inventory. Still, at the current pace of New Home Sales, it would take 6.5 months to clear that inventory.

Since we've been repeating ourselves when it comes to offering insight on the underlying fundamentals of record low New Home Sales numbers, we'll share some perspective from Wall Street economists.

From Reuters Instant View.....

RICHARD DEKASER, ECONOMIST, THE PARTHENON GROUP, BOSTON

"It's a positive surprise. Sales activity continues to bounce along the bottom. There is no evidence of a second leg down for housing, but there is no persuasive evidence of a rebound. This won't significantly alter lenders' behavior. The inventory of homes is at extreme scarce levels against the backdrop of a glut of existing homes. This is auguring well for future building activity. When does this happen? It's already happening, but you need a microscope to discern."

DAVID ADER, SENIOR GOVERNMENT BOND STRATEGIST, CRT CAPITAL GROUP, STAMFORD, CONNECTICUT:

"A bigger than anticipated gain to new home sales and a price gain (against three prior months of negative figures) so a firmer, if volatile, report."

MICHAEL GAPEN, SENIOR U.S. ECONOMIST, BARCLAYS CAPITAL, NEW YORK, NEW YORK:

"Certainly this was a better-than-expected report, but at the same time I am hesitant to read too much into it. Total home sales remain well below their longer term healthy levels, but nevertheless it is above the 286k average pace observed in the first quarter. "The lower activity in homes sales early in Q1 was largely due to adverse weather so it makes sense that we are seeing a rebound from those levels. Another positive is the supply of homes fell. If the months' supply drops to 4 months that would be pre-crisis levels, so even at the low level of sales, inventory is quite lean and so at some point the home builders will have to get out and start building again."

MICHAEL YOSHIKAMI, PRESIDENT AND CHIEF INVESTMENT STRATEGIST AT YCMNET ADVISORS IN WALNUT CREEK, CALIFORNIA

"I don't think there's much to make of this. There's still a tremendous overhang in the housing market, and while new home sales are starting to percolate, that doesn't change the fact that we still have such huge inventory. But since the number was about in line with expectations, investors will be focused on such other issues as Europe or corporate news."

GARY THAYER, CHIEF MACRO STRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS, MISSOURI:

"It's a good number, better than expected. It suggests maybe we're beginning to see some signs of stabilization in housing, but it's too early to say we've bottomed out. We still have a lot of existing homes for sale and that excess inventory is likely to hang over the new home market for the better part of a year. And home builder sentiment remains very negative. It does not look as if builders feel we have turned the corner yet."

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

"Home sales were stronger than expected but that's not saying much, given that the level is still low. But it's encouraging in the sense that it was broad-based across regions and it pulled the inventory of homes downward."

PATRICK NEWPORT, ECONOMIST, IHS GLOBAL INSIGHT, LEXINGTON, MASSACHUSETTS:

"The caution note is that this release tends to be volatile. The number is still good but it is flat at the bottom. Builders are having less problems selling their homes. It's too early to say we are at a turning point for housing. You have to wait three to four months of positive months before you can say things are getting better."

LINDSEY PIEGZA, ECONOMIST, FTN FINANCIAL, NEW YORK

"We did beat consensus, which certainly is a positive spin to this report. On the other hand, if you look at a chart of new home sales we really haven't gained any ground since the end of 2009. We're not losing any ground here but we're not making any positive headway. Demand is still tepid. Consumers are still struggling to make their monthly payments. We're still dealing with the same negative overhangs we've been dealing with for quite some time. "The market really doesn't read into housing like it used to because it doesn't mean what it used to in terms of supporting the economy and supplementing income. Unless we saw a very clear improvement in trend or decline in trend I don't think the market's going to respond to a housing report."

VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:

"New homes sales, just like every other housing indicator, has been on a roller coaster ride for 2011--rising for the past two months after having fallen in the two prior. The alternating patter will most likely persist for the rest of year. Every region experienced sales gains helping to push down the number of new homes available for purchase to 175k --a record low-- and the months' supply of homes down nearly 10% to 6.5%. The inventory breakdown is a double-edge sword as the lighter stock means sales are correcting backlogs, but the low numbers also show the damage still prevalent in the market given builders' adversity toward constructing homes no one is going to buy--especially given the price premium over previously-owned homes."