Tax Credit Deadline Spurs New Home Sales in April; Prices Drop

Dennis Norman

The U.S. Department of Commerce released a report showing the sale of New Homes in April were at a seasonally adjusted annual rate of 504,000, a 14.8 percent increase from the revised March  rate of 439,000 and is 47.8 percent above a year ago.
The inventory of new homes (seasonally adjusted) at the end of April is just 5.0 months a huge decline from just two months ago when it was 9.2 months.

My Mantra

As has been my long-running mantra, I don’t like “seasonally adjusted” numbers and “rate” of sales (nor does Standard & Poors, publisher of the Case/Shiller Index, now either as I wrote about). 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 and other incentives. This can create unseasonal bursts or declines in sales that don’t really have anything to do with the underlying fundamentals of the housing market.

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

  • 48,000 new homes sold in April, an increase of 23.1 percent from March’s 39,000 new homes sold and also a whopping 50.0 percent increase from April 2009 when there were 32,000 new homes sold.
    • 54.1 percent (26,000) of the new homes sold were in the South region- an increase of 23.8 percent from March.
    • the west region had 11,000 new homes sold, an increase of 22.2 percent from March
    • the Midwest had 7,000 new homes sold, an increase of 40.0 percent from March.
    • The Northeast had 4,000 new homes sold, an increase of 33.3 percent from March.
  • YTD – In the first four months of 2010 there have been 137,000 new homes sold, an increase of 18.1 percent from the same time last year.
  • Median sale price of new homes in the US in April was $198,400, a 9.7 percent decrease from March’s median new home price of $219,600 and a 9.5 percent decrease from a year ago when the median new home price was $219,200.
  • New Homes in the US in April have been for sale for a median time of 14.3 months since the homes were completed, slightly less than March’s revised figure of 14.5 months.

My prediction for 2010

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.

Additionally, the report yesterday about home prices dropping in first quarter (not to mention this months new home sales report showing falling prices) and today’s report about the lowest rate of home-purchase mortgage applications since 1997 tells me we are going to see lower new and existing home sales numbers in the coming months.

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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