Friday, April 24, 2009

"Historically Low" Fails To Adequately Describe New Home Sales

New home sales were down again last month, but people are under appreciating just how bad these numbers are. Once you factor in population growth into the mix — new home sales have fallen off a cliff compared to past economic downturns. Tim Iacono looks closer at this latest report, and offers some insight, in his blog post below.

The Census Bureau reported that new home sales fell 0.6 percent last month, from a seasonally adjusted annual rate of 358,000 in February to 356,000 in March, still at a level that the phrase "historically low" fails to adequately describe.
IMAGE Though the current sales level is up from the January low of 331,000, to put the March sales rate in its proper historical context, consider that the pre-2009 all-time low of 338,000 in September of 1981 works out to a population-adjusted rate of about 460,000.

The March total is still a full 23 percent below this pace!

While a bottom may indeed be forming after the relative stability of the last four months, these are the lowest levels of sales in the 46 years since this data series began and an improvement of some 29 percent from the current level is required just to equal the worst reading since JFK was sitting in the White House.

You can almost see the headlines later this year - New home sales surge 20 percent.

What will most likely be omitted from the story is that sales will have to increase by almost another ten percent just to better the level seen at the depths of the economic downturn in Ronal Reagan's first term.

Lower mortgage rates and tax credits for first time home buyers spurred sales in March helping to reduce builder inventory as the months of supply metric fell from 11.2 months to 10.7 months. This is down from a high of 12.5 months in January but still almost triple what would be considered normal.

Still highly distorted by sales incentives and other give-aways by increasingly desperate homebuilders, the median price fell from $208,700 in February to $201,400 in March, down 12.2 percent on a year-over-year basis, and is now at its lowest level since late-2003.

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