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New-Home Sales Crash In May after Sugar-Rush of Tax Credit Sales

Dennis Norman

Last month after the new home sales reports came out I had this to say:

“I’m very encouraged by home sales in March and April, both in new homes and existing home sales and, if it wasn’t for the fact the homebuyer tax-credit incentive expired April 30th, no doubt a factor that caused buyers to rush to buy, I would feel the market was turning. However, I have strong concerns that this recent “housing recovery” is the result of an artificial market created by incentives, leading to sort of a “sugar-rush” among homebuyers, and now that the sugar is wearing off, buyers will slow down.”

Unfortunately, my concerns were warranted it appears….Today The U.S. Department of Commerce released a report showing the sale of New Homes in May were at a seasonally adjusted annual rate of 300,000, a 32.7 percent decrease from the revised April rate of 446,000 and is 18.3 percent below a year ago.

The inventory of new homes (seasonally adjusted) at the end of May is 8.5 months almost a 47 percent increase from April when there was a 5.8 month supply.

My Mantra

As has been my long-running mantra, I don’t like “seasonally adjusted” numbers and “rate” of sales. Why, for one I can’t figure out how in the world they compute the numbers. Second, I just don’t think discussing New Home Sales September 2009the “rate” of new home sales paints a realistic picture of the market. I think this holds especially true when we have artificial forces affecting the housing market such as tax credits as we have seen what an artificial “bubble” in the market this can cause.

Here is the raw data, the ACTUAL new homes sold- no fluff, no “adjusting”

  • 28,000 new homes sold in May, a decrease of 36.4 percent from April’s 44,000 new homes sold and also a 17.6 percent decrease from May 2009 when there were 34,000 new homes sold.
    • 53.5 percent (15,000) of the new homes sold were in the South region- a decrease of 34.8 percent from April.
    • the west region had 5,000 new homes sold, a decrease of 50.0 percent from April
    • the Midwest had 5,000 new homes sold, a decrease of 16.7 percent from April.
    • The Northeast had 3,000 new homes sold, a decrease of 25.0 percent from April.
  • YTD – In the first four months of 2010 there have been 159,000 new homes sold, an increase of 6.0 percent from the same time last year.
  • Median sale price of new homes in the US in May was $200,900, a 0.9 percent decrease from April’s median new home price of $202,900 and a 9.6 percent decrease from a year ago when the median new home price was $222,300.
  • New Homes in the US in May have been for sale for a median time of 14.2 months since the homes were completed, slightly less than April’s revised figure of 14.3 months.

My prediction for 2010

I think this report shows that the housing market is still quite volatile, particularly new home sales, and consumers are still quite cautious. May is normally a good month for home sales and, as this report shows, sales have languished this month. Granted, some of the buyers that would normally be buying now may have pushed up the time-line to get the credits, so this may just be a lull from that, and YTD home sales are running slightly ahead of last year, so the sales numbers for June and July are going to reveal a lot. If new home sales for those months pops back up to the 37,000 – 38,000 range like they were last time last year then that would be encouraging and a sign the new home market is stabilizing. However, if new home sales for those months stay in the 20 something thousand range like May, then I think we are in for more pain.

As far as my prediction for new home sales this year I’m going to stick with my estimate of 336,600 – 355,000 new home sales in 2010.

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