New Home Sales in US through October; UP 5.1 percent OR DOWN 24.1 percent from a year ago, take your pick

Dennis Norman

Dennis Norman

This morning the U.S. Department of Commerce released a report showing the sale of New Homes in October were at a seasonally adjusted annual rate of 430,000, a 6.2 percent increase from the revised September rate of 405,000 and is 5.1 percent above a year ago.

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. For example, in September there were 31,000 homes sold and the original “seasonally adjusted annual rate” of sales was given as 402,000 homes. In October there were 35,000 new homes sold and this 4,000 home increase over September boosted the “seasonally adjusted annual rate” by 28,000 homes to 430,000. I do get the basic premise of the theory, the idea is, under normal conditions, sales increasing in a month such as October where normally you would expect a decrease could very well be an indication of growing market demand which will increase the rate of home sales in the following months as well thereby increasing the “rate” of sales siginificantly. However, this is NOT a normal market, not to mention home sales in September, October and November are all going to be significantly impacted by the homebuyer tax credit as people scrambled to buy a home and close before the November 30, 2009 deadline (which has now been extended to April 30, 2010 and even as late as June 30, 2010 – see my post for more info) thereby giving an artificial boost to these “unseasonal” sales.

Effect of tax credits on homebuyers like kid’s “sugar-rush”?

Although I do not have data showing what percentage of these new home sales involve buyers planning to receive the homebuyer tax credit, I think from the data one could guess the number is probably significant. Generally speaking based upon income limits of the credit (which were increased November 6th) buyers at or below the income limits could qualify for a mortgage for a purchase of a house in the $250,000 or so and under range. In October 79 percent of all new homes sold were priced under $300,000 and over half of those were under $200,000. My concern about this is, now that the credit has been extended there won’t be the rush to buy and come December we may very well see new home sales slow significantly and lose the momentum that was a result of the “sugar rush affect” on homebuyers of the tax credits that gave them that quick surge of energy and motivation to buy, but then quickly wore off as the urgency subsided with the extension of the credits.

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

  • 35,000 new homes sold in October, a 12.9 percent increase from Septembers 31,000 new homes sold and a 9.4 percent increase from October 2008 when there were 32,000 new homes sold
    • 57 percent (20,000) of the new homes sold were in the South region- an increase of 33.3 percent from Septembers 15,000 new homes sold
    • the west region had 7,000 new homes sold, a decrease of 12.5 percent from Septembers 8,000 homes sold
    • the northeast and midwest regions held steady with the same number of new homes sold in October as September, 3,000 and 5,000 respectively.
  • 328,000 new homes sold this year through the end of October which is a 24.1 percent decrease from this time last year when there were 432,000 new homes sold.
    • on YTD new home sales all four regions of the US have seen a decrease from the year before
      • Midwest decrease of 26.0 percent
      • South decrease of 25.2 percent
      • West decrease of 24.3 percent
      • Northeast decrease of 11.3 percent
  • Median sale price of new homes in the US in October was $212,200, an increase of less than 1 percent from Septembers median price of $210,700.
  • For the new homes sold in the US in October the median time they have been on the market for sale is 13.5 months.
  • Inventory of new home in US at end of October is 239,000 a 4.4 percent decrease from Septembers inventory of 250,000 – this is very good news…

My prediction

I have been predicting that we would end 2009 with about 385,000 – 395,000 new homes sold (versus 485,000 new homes sold last year), last month I revised this downward to 375,000 – 385,000 new homes sold for 2009. Now, as a result of the extension of the tax credits, and seeing the effect it is having on sales, I’m thinking I should have stayed put with my original projection of 385,000 – 395,000 new homes sold in 2009. Just for fun I’m going to pin it down to 390,000……oh yeah, I probably should mention, my number is NOT seasonally adjusted …..Happy Thanksgiving…

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