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June 23, 2016 | New Home Sales Decline 6%, Median Price Down 9.3%, Builders Offer Concessions

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

News home sales in May fell 6% from a downward revision to April’s huge numbers.

Those April numbers looked too good to be true, and they were. Yet, the May numbers were the second best in the recovery.

Home builders had to offer lots of concessions to get these numbers, and new buyers cannot afford much. The Median price on new homes fell a whopping 9.3%.

Let’s take a look at the other details from the Bloomberg Econoday report.

Highlights

Data on new home sales, due to small samples, are always volatile, but underlying the monthly swings is a trend of strength. New home sales fell a severe looking 6.0 percent in May but the annualized sales rate, at 551,000, is second best of the cycle, next only to April’s 586,000 (revised downward from an initial 619,000).

Home builders were offering concessions in the month based on the price data where the median fell 9.3 percent to $290,400. Year-on-year, the median price is up only 1.0 percent. A positive in the report is supply as 3,000 more new homes entered the market bringing the total to 244,000. Relative to sales, supply improved to 5.3 months vs 4.9 months in April.

The South is the driving force in the data, dipping 0.9 percent to a 323,000 rate but still up 13.3 percent year-on-year. In contrast, sales in the West, which is also an important region for new homes, fell 15.6 percent in the month to a 124,000 rate which is down 8.8 percent on the year.

Trends right now in the housing market do not appear to be red hot but only moderate, which perhaps is a positive for an often boom-and-bust sector.

New Home Sale Trends

New Home Sales 2016-06

Will May be revised lower as well?

Supply Nonsense

Month after month, the Bloomberg Econoday writer mentions supply of new home sales as if it is some kind of restraint.

Actually, there is never a huge supply of new homes already built for people to look  unless builders go crazy building spec houses. The last time they tried that it ended badly. Instead, the typical buyer looks at a few different models, is offered a set of options on those models, then negotiates a price.

New homes are reported as sold the moment a deal is signed.

Supply is a factor on existing homes where an overabundant supply tends to lead to falling prices. Here too writers get things wrong. If supply is holding back sales, it’s likely prices are higher because of that fact.

Returning to new home sales, if builders have to offer huge concessions and median price is going nowhere, one has to wonder if we are scraping the bottom of the barrel in terms of what the declining pool of remaining buyers can afford.

Mike “Mish” Shedlock

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June 23rd, 2016

Posted In: Mish Talk

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