Sometimes 'old news' is more important than 'new news.' This is certainly the case with the new homes sales numbers released today. On quick reading it looked encouraging, with new home sales in October up 1.7% nationwide from the September level, although still down 23.5% from a year ago. However, September's numbers were revised down dramatically, from a seasonally adjusted annual rate (SAAR) of 770,000 originally reported down to 716,000, just a 7.0% drop.
So while the October number, coming in at a SAAR or 728,000 looks like a potential start of a turnaround, it is just because the base has shifted. Relative to the original report, new home sales were down 5.5% for the month. New home sales are first reported with very large standard errors and are subject to several rounds of revision. The August numbers were also revised down, from 735,000 last month to the current estimate of 717,000, a downward revision of 2.4%.
There has been some improvement on the inventory front, with SAAR inventories down 2.3% for the month and down 6.7% year over year. However, even within that number there is some cause for concern: inventories of completed houses are actually up 13.7% year over year. It is the inventories of houses under construction that are down most sharply, down 17.3% year over year and the inventory of not-started houses (basically improved lots) is down 9.5% year over year.
Still, based on the as-yet-unrevised October selling rate, the months of supply dipped to 8.5 months from 9.0 months in September, but still up from 7.1 months a year ago. I would expect the October numbers will be revised down next month; virtually all of the revisions over the last 18 months have been downward.
By price, there was a fair amount of strength in the starter home market (< $200,000) where on a non-seasonally adjusted basis 26,000 homes were sold in October vs. 19,000 in September and 25,000 a year ago. The McMansion category (>$500,000) also did OK, with sales up to 7,000 from 5,000 last month but down from 9,000 a year ago (the numbers are only released as 7, 5 and 9, so there is a pretty wide range of potential percentage changes in those numbers). The move-up market is not faring as well with sales of just 24,000 in October, down from 31,000 in September and 40,000 a year ago.
In short -- and short is a good place to be -- the homebuilders like Lennar (LEN), Beazer Homes (BZH), D.R. Horton (DHI), Hovnanian (HOV), Standard Pacific (SPF), M/I Homes (MHO), Toll Brothers (TOL), Centex (CTX) and KB Homes (KBH) are not out of the woods. The time to buy the survivors is after the second or third of those stocks writes the eleventh chapter in their corporate histories. Nor do I see this report as good news for any of the big mortgage players such as Countrywide (CFC), MGIC (MTG) or Washington Mutual (WM).
Read the full analyst report on DHI.
Read the full analyst report on CFC.
Read the full analyst report on MTG.
Read the full analyst report on WM.
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