New Home Sales Up (but beware double digit monthly gains)

Commerce Department reported that April new-home sales jumped an unexpected 16.2% — the biggest monthly gain in 14 years. The year over year drop in sales change was a drop of 10.6%.

By no coincidence, the median home price dropped a 11.1% from the prior month — the largest amount on record. The big price decline implies that builders are slashing prices to move the huge overhang of unsold inventory. Inventory of unsold new homes fell to 6.5 months (seasonally adjusted) from 8.1.

Regional sales were even more telling. As we noted earlier in the week, the greater NY region (and NYC Condo/Coop sales) are skewing the national data. Year-over-year sales in the Northeast surged 43.1%; sales were down 28.1% in the Midwest, and 25.4% in the West. Sales fell marginally (3.4%) in the South.

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In the past, we have cautioned that double digit gains of new home sales are VERY unreliable monthly data points. (It is mostly due to the way the Builders self report their sales to Commerce).

Have a look at this analysis we did a few years ago:  It turns out that whenever New Home
Sales jump double digits, it usually reflects a mean reversion from the prior (or subsequent) month’s reportage. Indeed, over the past 15 years of data, we found that a mean
regression followed nearly every double digit monthly gains. Typically, the
subsequent month’s data was significantly lowered — flat to negative
in nearly every case:

>
New Homes Sales

onth, Year Double Digit Gain Subsequent Month Increase / Decrease
June 2003 10.7% July 2003  (-2.1%)
December 2000  11.7% January 2001  (-4.8%)
July 2000 11.9% August 2000 (-4.4%)
November 1998 11.4% December 1998 (-4.6%)
January 1998 10% February 1998 (-0.7%)
March 1995 10.2% April 1995 0.8%.
*February 1994; 10.82% March 1994 8.89%
April 1993  16.45% May 1993 (-10.70%)
September 1993; 12.56% October 1993 (-3.03%)
January 1992 21.15% February 1992 (-5.47%)

*February 1994 was the one exception — it was followed by strong
March and April data — but came after January 1994, which has the
honor of being the very worst month ever in the history of the Census Construction data: Down -23.77%.

In other words, stick with the two or three month
average.

>

>

Sources:
New Residential Sales
Commerce Department Census Division
http://www.census.gov/newhomesales
http://www.census.gov/const/newressales.pdf

U.S. April new-home sales unexpectedly jump 16%
Rex Nutting
MarketWatch, 10:00 AM ET May 24, 2007

http://tinyurl.com/36dt2d

Home Sales Soar by Record Amount

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