New Home Sales Muddle Along in March - April 24, 2012
At 10:00 A.M. (EDT), we received the latest report on the long-suffering housing market when the U.S. Department of Commerce issued new residential data for the month of March. At first blush, the report was decent, as new home sales were better-than-expected on a year-to-year basis in the latest month and data for February were revised upward.
Specifically, sales of new single-family houses in March came in at a seasonally adjusted annual rate of 328,000. That figure, though down 7.1% from the revised February figure, was up 7.5% year over year, and comfortably ahead of the consensus expectation of sales of 315,000 units. Too, the pace of sales for the month of February was revised significantly higher, showing sales of 353,000 versus the prior estimate of 313,000.
A geographic breakdown of the new home sales data also painted a mixed picture. On the positive side, new home sales were up 12.0% and 16.4% year to year in the Northeast and the South, respectively. This contrasts with declines of 7.1% and 7.7% in the West and the Midwest. But the most encouraging sign is that new home sales are up in each region year to date, with notable gains of 21.4% and 11.4% in the South and West, respectively. This data are noteworthy since these two regions are the biggest housing markets in the country, especially in terms of new residential construction.
Still, there is an awful a lot of work that needs to be done in this industry, which in our opinion likely hit bottom and in some areas may even be in the initial stages of a recovery. One ongoing concern remains the still-depressed home prices. In a separate report, The Standard & Poor's/Case-Shiller home-price index showed that prices dropped in February from January in 16 of the 20 cities it tracks, and home prices fell in February in most major U.S. cities for a sixth consecutive month. A big part of the reason for the weak selling prices is that new homebuilders are currently competing with foreclosures and short sales, which tend to sell at a fraction of their original listing prices. Unfortunately, about 50% of the states reported a marked increase in foreclosures in February—though it should be noted that the rate of foreclosures is rising because several states have reached settlements with the nation's five biggest mortgage lenders over foreclosure abuses. Nevertheless, until a marked improvement in pricing takes place, this industry is likely to be in a two steps forward, one step backward recovery phase.
The construction and sales of new homes—though only a small fraction of the nation’s total home sales at roughly 10%—is vital to the overall health of the U.S. economy as each new property built creates an average of three jobs for a year and generates close to $100,000 in tax revenues.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.