by Bill McBride on 8/26/2008 10:00:00 AM
Tuesday, August 26, 2008
According to the Census Bureau report, New Home Sales in July were at a seasonally adjusted annual rate of 515 thousand. Sales for June were revised down to 503 thousand.
Click on graph for larger image in new window.
The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted).
Notice the Red columns for 2008. This is the lowest sales for July since the recession of '91. (NSA, 43 thousand new homes were sold in July 2008, the same as in July '91).
As the graph indicates, there was no spring selling season in 2008.
The second graph shows New Home Sales vs. recessions for the last 45 years. New Home sales have fallen off a cliff.
Sales of new one-family houses in July 2008 were at a seasonally adjusted annual rate of 515,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.4 percent (±11.6%)* above the revised June rate of 503,000, but is 35.3 percent (±7.3%) below the July 2007estimate of 796,000. And one more long term graph - this one for New Home Months of Supply.
"Months of supply" is at 10.1 months.
Note that this doesn't include cancellations, but that was true for the earlier periods too. The months of supply is down from the peak of 11.2 months in March 2008.
The all time high for Months of Supply was 11.6 months in April 1980.
And on inventory:
The seasonally adjusted estimate of new houses for sale at the end of July was 416,000. This represents a supply of 10.1months at the current sales rate. Inventory numbers from the Census Bureau do not include cancellations and cancellations are falling, but still near record levels. Note that new home inventory does not include many condos (especially high rise condos), and areas with significant condo construction will have much higher inventory levels.
I now expect that 2008 will be the peak of the inventory cycle (in terms of months of supply) and could be the bottom of the sales cycle for new home sales. But the news is still grim for the home builders. Usually new home sales rebound fairly quickly following a bottom (see the 2nd graph above), but this time I expect a slow recovery because of the overhang of existing homes for sales (especially distressed properties). If the recession is more severe than I currently expect, new home sales might fall even further.
Looking forward, I'm much more pessimistic about existing home sales, and existing home prices, than new home sales.