new home sales rise as prices fall

The new home sales report for January showed that sales rose 4.7% month-over-month (m/m) to 337,000 units on an annualized rate, better than the expectation of a fall of 2.9% m/m to 300,000 units. Year-over-year (y/y), new home sales fell 41%. Inventory of new homes for sale fell to 330,000, comprising 12.2 months worth of sales, much higher than the 5 to 6 months that is considered a stable market. The median price of a new home fell 18% year-over-year, to $200,900, the biggest y/y drop since records began in 1964.

[Schwab Alerts, 3/25/09]

Mauldin retorts

I opened the Wall Street Journal and read that new home sales were up in February. Bloomberg reported that sales were "unexpectedly" up by 4.7%. I was intrigued, so I went to the data. As it turns out, sales were down 41% year over year, but up slightly from January.

But if you look at the data series, there was nothing unexpected about it. For years on end, February sales are up over January. It seems we like to buy homes in the spring and summer and then sales fall off in the fall and winter. It is a very seasonal thing. If you use the seasonally adjusted numbers, you find sales were down 2.9% instead of up 4.7%. But the media reports the positive number. Interestingly, they report the seasonally adjusted numbers for initial claims, which have been a lot better than the actual numbers. Not that they are looking to just report positive news, you understand.

[I suppose Mauldin has a point, but the main point is that the number reported was better than expected. Whether it was up or down is immaterial. Even if sales were actually down adjusted, it was still better than expected. Or is he saying the analysts were stupid for expecting a negative number?]

[4/1/09] Pending home sales for February rose 2.1%, higher than the Bloomberg estimate of flat month-over-month. This series has been volatile on a monthly basis, as represented by January's decline of 7.7%. Pending home sales are considered a leading indicator as they track contract signings. As Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article located at www.schwab.com/marketinsight, Brighter Light at End of Housing Tunnel, sales and traffic of potential homebuyers has picked up, notably in areas where prior declines were most severe. While still at elevated levels, inventories have declined, and prices will likely have to fall another 10-15% before finding stability. However, if the pace of inventory declines continues, the light at the end of the tunnel should get brighter. [Schwab Midday Market View]