Tuesday, May 27, 2008
Headlines VS Details
Not that anyone could blame consumers with these prices.
New Home Sales are reported to have risen on an SA basis, and the supply to have dropped. But what leaped out at me in this report was that there was a sharp drop off in the number of completed homes that sold in April. Last year in April 31,000 completed homes sold. This year only 19,000 homes sold, and that is down from 25,000 in March. Furthermore, median months for sale keeps rising and now stands at 8 months, compared to 5.8 months last April. The number of completed homes for sale at the end of April was 180,000 compared to last year's 181,000. I see no cause for optimism in this report.
The reason I am concentrating on these indicators instead of the total number of homes for sale is because of the cancellation problem. We don't know how many sold, then cancelled, new homes for sale are out there, because once they are reported sold they drop off this report forever. We do know that these cancellation numbers have been running at very high levels for several years now. My guess is that once the YoY inventory of completed homes for sale starts to drop and median months for sale starts to drop it will be safe to assume that the total inventory of new homes for sale is dropping. Until then, I think it is very likely to be rising.
This report is very bad news for banks stuck with loans to builders, because it looks as if a lot of inventory is just stuck, not moving at all, and that the implementation of jumbo GSE loans didn't do much to change the situation.
My guess is that source of what seems like a drastic change are REOs in new developments that are now underpricing builder sales. You'd have to be kind of stupid to pay a hundred thou more to buy a never-lived-in home from a builder when you can buy a very similar, never-lived-in home from the bank in the same development.
This report also contained a strong signal relating to the financial company meltdown. The northeast now has by far the worst YoY drop off in sales at -58%.