New homes sales: down, down, downDean Foust
Remember a couple of months ago when homebuilders were citing home sales data as evidence that the housing downturn had bottomed and stabilized? So much for that. The Commerce Dept. reported earlier today that new homes sales fell sharply – and unexpectedly in February – dipping to their lowest level in almost seven years. Sales of single-family homes fell 3.9% to a seasonally adjusted annual rate of 848,000.
The poor housing report came as a shock to Wall Street, which was banking on a 6.7% increase in demand. Adding insult to injury, previously released estimates for November through January were revised down sharply, with the January level lowered by nearly 6% and the December level lowered by 6.8%. Stocks tumbled in response, particularly those of housing-related companies.
Though the depressing housing numbers might raise new concerns over whether the economy is headed into recession, don’t jump from the ledge just yet. Not that I’m arguing that the downturn is over and the good times will roll again pretty soon. It’s just that housing data is notoriously volatile on a month-to-month basis. It’s possible that the downturn was caused in part by the bitterly cold weather that many regions of the country suffered in January and February. And new homes only comprise roughly 15% of total home sales, and existing home sales are still rising (of course, some economists like Maury Harris at UBS warn that existing home sales data tend to lag new home sales data by about a month or two, since they are based on sales contract closings while new home sales data are based on initial signings).
One other point: some economists were struck by the disconnect between the homes sales data, which is down, and mortgage applications, which remain strong. Of course, it’s quite possible that there ARE a lot of mortgage applications, but that A NUMBER of those applications will be denied, as banks suddenly get tougher in their underwriting standards.
Another problem for sellers – be they homebuilders with new construction, or the owners of existing homes – is the growing inventory overhang. There were an estimated 546,000 new homes for sale at the end of February. At the current sales pace, that’s an 8.1 months’ supply – the highest supply since January 1991.