Thursday, January 29, 2009

New home sales fall by 37.8% from 2007 levels to lowest level on record

Sales of new homes fell by 37.8 percent from 2007 sales. Total sales in 2008 were 482,000 compared to 776,000 (the total sold in 2007), according to Mission Residential. The median new home price dropped by 9.3 on a a year-over-year basis.

These numbers may actually be skewed higher because the monthly sales data does not reflect cancellations, which means sales are probably lower and actual inventories higher. Because of these adjustments the actual supply on the market jumped to 12.9 months in December. Don't expect home builder stocks to recover any time soon.

Richard Moody, Chief Economist for Mission Residential says "new home prices will remain under steady downward pressure, and new residential construction may bottom later this year but will remain weak through 2010." Low-priced foreclosures are adding to the market stresses that home builders face. "To the extent that low mortgage rates and sales incentives, such as buyer's tax credits, do facilitate sales, those sales are increasingly titled towards existing homes," Moody added.

There is some good news. Builders do appear to have a handle on building starts. Now that starts of new homes have dropped well below the sales rate, the front end of the pipeline is under control. But, completions of new homes intended for sale are still running well ahead of sales. So the breaks are not fully in place yet. Until builders can turn the tide and shorten inventory supply we won't see a turnaround in the building industry.

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