New Home Sales Drop in February

Dennis Norman

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 the “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”

• 24,000 new homes sold in February, a 9.0 percent increase from January”s 22,000 new homes sold and also a 17.2 percent decrease from February 2009 when there were 29,000 new homes sold.
  • 45.8 percent (11,000) of the new homes sold were in the South region- the same number of homes sold in January in the South
  • the west region had 8,000 new homes sold, an increase of 33 percent from February
  • the Midwest had 3,000 new homes sold, the same as the prior two months.
  • The Northeast had 2,000 new homes sold, a the same as last month.
• YTD – In the first two months of 2010 there have been 46,000 new homes sold, a decrease of 13.2 percent from the same time last year.
• Median sale price of new homes in the US in January was $220,500, an 8.3 percent increase from February’s median new home price of $203,500.
• New Homes in the US in January have been for sale for a median time of 14.4 months since the homes were completed; this number has been increasing every month.

My prediction for 2010

I hate to be so negative, but I just don’t like what I’m seeing in the new home market. Near record low interest rates, home buyer tax credits as well as beaten down prices just has not had much of a positive effect on new home sales. We are at record low numbers for new home sales and there doesn’t seem to be anything that is going to change this dramatically anytime in the near future.

In addition, I am concerned we may have a second “mini-bubble” coming. I say this because, as I wrote a few days ago, new home construction, even though at greatly reduced numbers from it’s peak, is still significantly out pacing new home sales. In February new home construction starts were at a seasonally adjusted rate of 499,000 home; 62 percent higher than the seasonally adjusted new home sales rate for the same period. Looking at just raw data (not seasonally adjusted) there have been 65,100 new homes started in the first two months of this year; 42.4 percent more than the 46,000 new homes that were sold in the same period. If this trend continues new home inventory is going to continue to grow and, if sales don’t increase significantly, we may very well find ourselves back where we started soon.

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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