Monday, October 27, 2008

New Home Sales Surprise to the Upside

From Bloomberg:

Sales of new houses in the U.S. were unexpectedly rising before credit markets froze this month, having rebounded from a 17-year low thanks to a drop in prices.

Purchases increased 2.7 percent in September to an annual rate of 464,000 from 452,000 the prior month that was less than previously estimated, the Commerce Department said today in Washington. The median sales price decreased to a four-year low.

I'm less impressed with new homes sales than existing home sales largely because of the size difference between the markets. New homes on the market are about 10% of the existing home sales market (400,000 vs. 4.2 million). However, it is important to keep track of both markets.

The following two graphs from Calculated Risk indicate why I don't think we're anywhere near a bottom.

Although the absolute number of homes on the market has been decreasing:

The rate of sales has also been decreasing which is increasing the number of months' of inventory on the market.

That means further price declines are ahead, especially considering the job market is looking terrible leading to lower confidence leading to fewer homes purchased.