Not that surprising. While I look at these #'s with a grain of salt, it fits with what one would expect: homebuilders are cutting price to steal share from existing homes.
The "sticky price" hypothesis doesn't support this kind of behavior. If its true that HB's face the marginal cost of the structure, they will continue to cut prices to monetize land holdings and service debt. The longer existing homes remains "sticky", the more share they will steal. Will home sellers respond?
Well, if you accept that sales went up 16% in the past month you have to accept that prices also fell 11% in the last month.
I don't know if I believe either.
BTW almost the exact same thing happened last year at this time. Housing bulls were cheering the stellar increase in new home sales, bears were pointing to the dramatic one month price declines.
I suspect it's the seasonal adjustments misaligning with the actual beginning of the season.
This is a surprisingly strong report, and sales will probably be revised down. More later today on New Home Sales.
When you look at this chart and try to do a 'visual curve fitting'... going back a few months & connecting the dots as if to a smooth curve and comparing it to the previous years (as if they were a smooth curve)... not much has really changed overall from the last few months.
I think the way they crunch the numbers made last month look worse than it was and this month look better than it is... noise... in reality, sales are down something like 10-15% off last year and continue to be off in that range plus or minus noise.
I don't see this report as anything more than confirming what's been going on for awhile. JMHO.
The median sales price was down 11% (so I heard). This isn't a good thing for all the mortgages near 100% LTV. Definitely don't think it's as good as the initial market reaction.
"The median and average sales prices were up. Caution should be used when analyzing monthly price changes since prices are heavily revised."
Where does this come from?
From AP
"However, the median price of a new home sold last month fell to $229,100, a record 11.1 percent decline from the previous month. The big price decline indicated that builders are slashing prices in an effort to move a huge overhang of unsold homes."
This is actually good news for people like me. You guys, drop those prices. The striking thing about this report is the liquidity of the market. This report was not sticky at all. It also gives insight to what banks will be doing with foreclosed homes.
A surprisingly strong report which must mean that the Martians have arrived and met those surprisingly robust house prices and knocked that supply of inventory on its surprising ass.
It can only mean that there will be a crush to get your RE ticket...so expect unemployment rates to plunge from the already low 4.5% level. But don't take these surprises laying down. Sign your dog up and make it go negative, people.
Here's my take on the numbers and what they mean, for what it's worth. The key takeaway: When you throw "cash on the hood," you move houses. That's what builders did, helping driving home prices down by the biggest margin in 37 years.
New home sales soared to a seasonally adjusted annual rate of 981,000. That was up a hefty 16.2% from a revised 844,000 units in March, the biggest monthly gain since April 1993. Economists were expecting sales to rise only slightly -- 0.2% to 860,000 from an originally reported 858,000 units in March. On a year-over-year basis, home sales were still down 10.5%. The April 2006 sales rate was 1.097 million.
On the inventory front, there were 538,000 new homes for sale as of last month. That was down 1.5% from 546,000 in March and down 4.8% from 565,000 in April 2006. On a months supply at current sales pace basis, we had 6.5 months of inventory. That was down sharply from a revised 8.1 in March, but up from 6.2 in April 2006.
Median prices? Fasten your seat belt. They plunged 11% to $229,100 from $254,000 in March. That was also off a sharp 10.9% from last April, when prices hit a record (to date) of $257,000. This was the worst year-over-year drop in prices going all the way back to December 1970.
When you slash prices and pile on the incentives, you move product. That was the lesson the auto industry taught us post-9/11, and that's the lesson in today's new home sales report. Sales surged by more than 16% and inventory levels fell because builders lopped thousands off the price of their homes. In fact, median prices showed the sharpest year-over-year drop in April in almost 37 years!
The good news: There's still housing demand at the right price. Plus, inventories are slowly coming down. The bad news: Supply remains at very high levels, historically speaking. And if you're looking to sell your house, you're up against some extremely aggressive competition from the new home industry.
Here is a cross post of what I just put up on Zacks.com, sorry if it is redundant with what CR has already put up, but it also contains a few more details.
Dirk
WOW, this was an extremely strong report. New home sales in April soared 16.2% to (seasonally adjusted annual rate) 981,000 from a revised level of 844,000 in March. This is the best one month performance in a long, long time. The good news however is tempered by a few of the details in the report, most notably a sharp downward revision to the March numbers. They were originally reported at 858,000. Still the big gain in April more than offsets the downward revision for March. While the raw level of inventory of new homes was unchanged, the higher sales dropped the months supply back down to 6.5 months from 8.1 months in March. That is a historically high level, but no where near as worrisome as the March level.
The gains were relatively wide spread with three of the four regions posting gains. The Midwest was the exception falling 4.0%. The real mover was the all important South region where sales soared 27.8% from March levels. The West was up 8.5% and the North East was up 3.8%. The other wet blanket on this very strong report was that the median price of a new home plunged to $229,100, down 11.1% from March. The average price declined to $299,100 from $324,700, a 7.9% drop. Essentially all of the increase in sales activity was at the low end of the market. Sales of new homes priced under $200,000 jumped 50.0% for the month, an incredible performance. Sales of mid-priced homes ($200-400K) fell 5.3%, while sales of luxury homes fell 5.9%. Generally houses are lower priced in the South than in the North East or the West, so the regional mix is probably related to the sharp drop in the median price and the strength in the low end houses. This might also be evidence of very aggressive pricing on the part of the home builders.
While it is too early to declare the housing slump over, one monthÂ’s data, especially data with as large an error factor as these (the 90% confidence interval for nationwide sales is plus or minus 13.0% and much larger for the regional indexes) is not enough evidence for that conclusion. However, this was a stunningly strong report, and if it is confirmed by next months report, we may have to rethink our entire position of the housing issue.
If you really want to get a feel for what is going on - using this data as your compass - measure (eyeball guestimate) the area under the curves for sections of time & compare with the same time one year earlier, two years earlier, etc...
My eyeballs tell me the trend is still heading down but doesn't appear to be accelerating... probably decelerating but still declining. That's just a rough eyeball guess.
This month-to-month data ping-pong will drive you crazy if you don't stand back & look at the whole trend.
When you slash prices and pile on the incentives, you move product.
Mike, I disagree with this assessment simply because I made the same argument when this happened in the Spring of last year. Both the price declines and sales increases were revised away as far as I can tell.
I keep saying it: and now the data is maybe supporting the point of view that the builders will build and build, still survive, and it will be the existing house sellers who will suffer the most.
Meanwhile builders are likely to say they are having a hard time of it....while they build and build...perhaps they are suffering but with such big run ups in prices there is money to be made surely?
I just published my take in my blog (click my name for link):
The second stage of housing bust officially started
Posted by theroxylandr under Real Estate , Economics(edit this)
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The very significant event just happened. Today the Census released the astonishing 16% (subject to heavy revisions) increase of new home sales and horrible, unprecedented 11% decline in median and 8% in average price.
One can also say that homebuilders declared the war to existing home market. The 11% price decline across the nation probably means 20%-25% price decline in some hot areas, just in 1 month.
It was already reported many times that in some areas new homes are much cheaper than comparable existing homes. The significant part of homeowners have less than 20% equity in their homes, and another 11%, 20% or 25% decline in price will put millions of families upside-down in their mortgages.
This is massive decline in wealth across the nation, probably in the range of $1 to $2 trillion dollars in just one month. This is already comparable to Nasdaq slump in 2001.
The denial phase of housing slump is probably over. Now we are moving to recognition, panic and then acceptance (that would be the bottom)
We cannot draw conclusions until tomorrow. The digital sign for metro brokers in the capital of the south, Atlanta, has now gone to 108,400 homes listed for sale. Last month it was approximately 102,000 and it has been steadily increasing since February. If inventories on existing continue to go up median prices stay flat then all this number tells us is that the builders blinked first.
New home sales soar
March gain of 13.8% the biggest in 13 years, showing surprising strength in housing market, but that was partly driven by builders cutting prices.
April 27, 2006: 2:41 PM EDT
New home sales posted the biggest jump in 13 years in March, but sales got a boost as builders cut prices to cope with higher mortgage rates and a growing backlog of houses on the market.
The government reported new homes sold at an annual rate of 1.21 million homes in March, up 13.8 percent from a revised 1.07 million pace in February. That easily topped forecasts for a 1.1 million pace from economists surveyed by Briefing.com...
The median price, which reflects the point at which half the homes sell for more and half sell for less, also fell 6.5 percent to $224,200.
If we look at the March report we see that, in the original release, 84 thousand houses sold at an average price of $330.9 K for an implied total revenue of $27,795 K.
Now we have the April report showing 92 thousand houses sold at an average price of $299.1 K for an implied total revenue of $27,517 K.
So the total cash flowing into the home builders is essentially unchanged. Market celebrants should hold the champagne for a bit longer. (Note that I've used the original report's 84 thousand houses, not the revised 81 thousand since we should expect that the average to have changed also -- but we don't know what value to use.)
I think the explanation is that this is a dead cat bounce caused by the price cuts and feature upgrades. People have been holding out but some finally had to scratch that nesting itch. The total number of homes available (new + existing) is still completely out of line with demand, the tightening of credit continues, and the ARM resets are still ahead of us. Thus I think sales will be down YoY less than expected in May and June as due to people having personal reasons to buy and thinking they are getting a big discount, but then will plunge in late summer through the winter for macro reasons.
No ac - Mike is correct. I live in 'sales' and if you cut price & promote like hell you will move product - period. This even applies to snow cones to eskimos.
What happened last year was that sales got 'better' around the peak selling months then 'worse' again in the fall... so the 'annualized estimate' LOOKED better in the spring & summer like it does now and the 'annualized estimate' looked worse in the fall & winter. Really nothing much had changed... just the annualized estimate shifted.
Concentrate on the trends... it will take a quite a few months to tell whether the sales trend is really shifted back up a notch or not... probably won't really know until after August & we are back into the off-season... If Aug-Dec 2007 is below Aug-Dec 2006... then we are still heading down... just maybe not as fast.
Until then be thankful CR is crunching the numbers & we can lazily watch-n-wait.
No ac - Mike is correct. I live in 'sales' and if you cut price & promote like hell you will move product - period. This even applies to snow cones to eskimos.
Check out the link I just posted. I'm not arguing that cutting prices doesn't boost sales, only that this isn't the cause for what we saw this month with the new home sales.
Again, you guys are slightly ahead of the doom and gloom curve.
But what is certain is that if house prices dont pick up then a very very large number of current homeowners who are requiring refi on reset are going to face a very difficult experience
ac posted: "...The median price, which reflects the point at which half the homes sell for more and half sell for less, also fell 6.5 percent to $224,200.
What ever loan you have when comp prices are 11% ON AVG !!! this means that in many many places (especially south Cal) they are down by 15%, 20% and even more.
Even if you had a 90% LTV interst only loan you canot re-fi.
If you had a 95% 100% option ARM you are doomed.
that is the reality. This was a market in which everything was cool as long as prices go up and re-fi every two years.
Some of you need to chill out. It's just one month. Even if this report is accurate, it's clear things aren't turning around for home builders yet.
Exactly.
This report reminds me of the record auto sales from a few years ago... enough price cutting & perks and you can move product. And as Seb pointed out the prices aren't even that low yet compared to YTY comparisons. They got room to go down more.
The builders are mining their inventory - land, WIP & finished goods... I'm glad for them. They should be cash flowing like crazy. But we won't know whether they've hit bottom with this & are on rebound or not for a number of months (looking back). We can guess but that's all it is right now.
Also - we won't know how much real damage has been done to them through this whole ordeal until they have to go back & replenish inventory at the new cost & selling price structures... If land has declined enough & labor costs & raw materials are low... and prices don't fall too much more... they'll be fine.
If on the other hand they have to refill the pipeline with expensive land & materials and prices are soft... then the worst is still ahead (from a cash flow and P&L basis). We'd have to be an insider to that info to know & it probably varies from company to company.
That's the exact same viewpoint I take in analyzing what's happening in housing. The only thing (to me) that really matters is the actual volume of money flowing.
I am confused about why people don't just report the volume of money.. that's what influences mortgages, commissions, and everything else.
So, unless you get paid a flat-rate per home to do some job.. an increase in transactions doesn't help much unless the average price does not drop "too much".
Frankly.. if the average price is considered useful.. and the number of transactions is considered useful.. then the combination of the two should be just as useful.
The dollar volume is on the way down.. and it is continuing down.. fairly simple.
dryfly said: "...And as Seb pointed out the prices aren't even that low yet compared to YTY comparisons. They got room to go down more..."
They've got room to go up more instead of down more, but whatever. The year-over-year comparisons are going to gradually improve as the year progresses.
That's the exact same viewpoint I take in analyzing what's happening in housing. The only thing (to me) that really matters is the actual volume of money flowing.
And money flowing out. There is a COGS counterpart to revenue that is at least as important.
They've got room to go up more instead of down more, but whatever. The year-over-year comparisons are going to gradually improve as the year progresses.
No chance in hell.
They have no pricing power left, not with existing inventory out there and the REOs coming on stream & not with the 'price rise' psychology momentum broken and now with people expecting all the perks thrown in for free. I have a number of buds in this biz - the climate has changed... probably for a long time.
This is very much like the zero financing rebate issues the automakers found themselves in. You can't produce your way out - instead you practice scorched earth strategies, hope your competitors fail and let the demand build to regain pricing leverage.
Just don't be one of the ones that fail... That's where they are now - believe me.
Glen Creno
The Arizona Republic
May. 23, 2007 12:00 AM
Having trouble selling your house so you can buy that new dream home? No worries.
Some builders will let you trade in the old place as part of the deal for a new one.
Builders frustrated by customers canceling deals are coming up with aggressive ways to keep them. Some are offering trade-in programs. Others are giving sales guarantees on existing homes. It's a switch from their traditional role in the house deal: building and then selling them. Now, builders are taking a more active role in clearing the way for buyers to purchase their homes.
Cancellations shot from 1 percent in January 2005, the midst of the housing boom, to nearly 29 percent in March, according to Hanley Wood Market Intelligence, a real estate and new-home construction consulting firm in Costa Mesa, Calif.
At Scottsdale-based Meritage Homes, cancellations stood at 28 percent. At KB Home, it was 31 percent. Pulte Homes lost 25 percent of the sales to cancellations in its Southwest division, which includes Arizona.
Valley housing analyst RL Brown said a 15 percent rate is an acceptable industry standard,
Alec - I have been looking for that to happen. I've been saying all along that housing market was morphing into the auto industry... and we'll know it when the give rebates, free options and allow for trade-ins... I was waiting for the 'trade-ins'... the last domino to fall.
And we all know the US automotive industry is role model to follow. I wonder how long until the Japanese come over and teach 'us' how to build energy efficient, affordable, high quality homes?
No chance that they have room to go up much in price... noise will bounce the price numbers around up and down some (product mix, etc.) but there is way too much downward pressure on pricing to see big increases.
I do believe new home UNIT SALES numbers year over year comparisons will improve as producers continue to force 'houses off the lot'...
If they want to hold pricing firm; it will only come at the expense of sales numbers. They won't get both sales numbers & price - not yet. Someday it will be back but not soon.
Housing in Japan really sucks - it's cramped and poorly heated.
America knows everything it needs to know about efficient, affordable housing and has for a while. It's just that almost nobody here wants quality. Everybody here wants a 5000 sf McMansion with poor finishes and poor insulation, not a 2000 sf home with high-quality finishes and good construction.
And then there is whole car-dependent suburb problem.
New home sales "surge" in April yet homebuilder confidence is extremly low, according to the most recent survey?
Why?
I guess given the recent plunge in prices, the homebuilders have seen a "surge" in cancellations.
"...enough price cutting & perks and you can move product."
Amen brother, been there and done that. When people get desperate enough they liquidate inventory at whatever it takes -- all the way down to their marginal cost if necessary. Remember that, to the extent the land and its improvements are sunk costs, the HBs really only need to recover the incremental costs of building the next house(here I'm ignoring any debt covenants etc.). So the question arises -- just how badly do they need cash?
"There is a COGS counterpart to revenue that is at least as important."
Yes there is, but I believe it's the cash costs that really matter in a crisis.
Fred - new housing in Japan is fine. Small but that's what happens when you live high density.
Its the older stuff (and some of it is quite old) that is poorly built & inefficient.
Similar thing in Europe - my wife has relatives in Norway and has seen their homes. New stuff is fabulous... old stuff is, well, 'rustic'.
But as for us knowing how to build... we also knew how to make cars too (still do)... management wasn't then and still isn't focused on that as much as the 'financial engineering' associated with running a large company like an automobile mfgr.
Same thing applies with building indusry & their exec's... they don't know what a hammer (or air nailer) is. They know a bonus when they see one though.
If they face real competition - product offering and price - maybe that changes. Maybe that competition has to come from outside the existing industry participants to change the model... That was my point.
Place me in the camp of those who see the builders taking a bite out of existing, which is something that is part of every serious RE downturn.
Even with that I am somewhat taken aback by the volume and expect a very significant downward revision. I haven't climbed into the report yet, but as Dirk points out, sales gains in the west and NE accompanied by a price drop is quite an anomaly.
With so much of the gain concentrated at the bottom, there is some economic sense to the data. A sale price under $200K combined with a decent interest rate does fit well as an economic wash or at least close to it with monthly rent expense.
Yes there is, but I believe it's the cash costs that really matter in a crisis.
Absolutely - we are singing from the same hymn.
My point is without knowing COGS (especially how much is sunken-fixed vs cash-variable)... we can't know much more from the revenue numbers than the unit sales numbers... so unit sales are pretty good proxy & easier to tally.
But you can bet their sales folks are getting the ABCs every day all day (for you non-sales geeks 'always be closing').
God I'm glad I'm not them - it would suck to be them.
The analogy to zero-percent auto loans, and rebates, is a good one.
The problem is that you cannibalize tomorrow's market to get your money out now. And "tomorrow's market" includes all those folks hoping to sell existing homes.
"Maybe that competition has to come from outside the existing industry participants to change the model."
Fair enough, though I think a catalyst (probably consistently high energy prices) will have to emerge before people will accept a different housing pattern from what America has now.
To be fair there are lots of nice condo projects going up in urban areas around the country, but that is small portion of the market consisting mostly of childless singles and couples at the higher end of the income scale.
on the surface one would think but overall, doesnt old vs new represent growth patterns and migration resulting in a bifurcated market much different than new car vs old car?
i.e. i can look around in a 10 mile radius and barley see any new homes. sure there are condo buildings but not like the scale of the exurbs.
if you needed to live in a certain place, you live there. if its new its new if its old its old.
if you needed to live in a certain place, you live there. if its new its new if its old its old.
It depends on what you mean by "place". I know people that commute 50 miles (one way) to work. If you draw your radius out a little further, you're probably closer to answering your own question.
Yeah, I can't really visualize what the builders are going to do with a bunch of trade-ins, when they can't even move what they have... Fire sales? Deep discounts? How's that going to work?
Rational home builders must clear inventory. External factors such as liabilities, payrolls, expenses,etc. compel them to move the excess even at lower price. Why would the homebuilders unload if their forecasts indicate an improving market climate? The number today reflects this rational behavior. The individual homeowners, unless motivated to sell, hold out believing the conditions will improve. The homebuilders act rationally while existing homeowners don't! The downward pressure, lower price, will now begin in earnest. To sell one must lower price. The generals are fleeing and little soldiers are left defending the fort.
COGNITIVE DISSONANCE?
Amazing to read the comments...and it makes a sceptic feel good to see... that the reaction is of course to doubt the data... IT CAN'T BE RIGHT..
But while one can "doubt" the data, the data it is.. and "rationally" one would also have to diminish the certainty with which one held his own convictions..s
At the very least no can can walk away from today as certain as he was yesterday bout the state of housing....
All of a sudden realizing that the data we have is so volatile as to be near useless...is even more reason for putting a Bayeian probability on the possibility that our premise might be incorrect...
By the way prices for houses over 200,000 dollars were basically unchanged to up..
And in reality those are the only ones that have any economic impact..
At the very least no can can walk away from today as certain as he was yesterday bout the state of housing....
Ummm no. That would only be true if you didn't look at the overall TREND today or yesterday... i.e. didn't look at the curve on CRs chart over time. Really nothing has changed much at all between today and yesterday. Nothing. Noise up, noise down.
You say homes over $200K don't matter? Well those are the ones that didn't sell well... the cheap unimportant ones were the ones floating this BODACIOUS report.
Talk to me in August about the state of housing... by then we will have a better idea if this is the turning point or just another head fake.
Phyron - they did this last year, then heavily revised the numbers down later when it wouldn't make headlines....it's not like there is zero precedent for expecting the data to be revised downward. So yes, it could be revised up instead of down next, but I think the chances are slim and none, and Slim just left the building.
Bull$##@
CR,
Not that surprising. While I look at these #'s with a grain of salt, it fits with what one would expect: homebuilders are cutting price to steal share from existing homes.
The "sticky price" hypothesis doesn't support this kind of behavior. If its true that HB's face the marginal cost of the structure, they will continue to cut prices to monetize land holdings and service debt. The longer existing homes remains "sticky", the more share they will steal. Will home sellers respond?
LIARS, WH%$#!, SH1()$
Well, if you accept that sales went up 16% in the past month you have to accept that prices also fell 11% in the last month.
I don't know if I believe either.
BTW almost the exact same thing happened last year at this time. Housing bulls were cheering the stellar increase in new home sales, bears were pointing to the dramatic one month price declines.
I suspect it's the seasonal adjustments misaligning with the actual beginning of the season.
Think about it this way: with ten months of inventory in a market,
-there's the price at which you have a 10% chance of selling your home in a given month (one in ten sell given inventories).
-and there's the price at which you have a 100% chance of selling your home in a given month.
Now, if you were determined to sell your home (as the homebuilders must to service debt), which price would you charge?
I think David Pearson is correct.
There are other options:
This is a surprisingly strong report, and sales will probably be revised down. More later today on New Home Sales.
When you look at this chart and try to do a 'visual curve fitting'... going back a few months & connecting the dots as if to a smooth curve and comparing it to the previous years (as if they were a smooth curve)... not much has really changed overall from the last few months.
I think the way they crunch the numbers made last month look worse than it was and this month look better than it is... noise... in reality, sales are down something like 10-15% off last year and continue to be off in that range plus or minus noise.
I don't see this report as anything more than confirming what's been going on for awhile. JMHO.
The median sales price was down 11% (so I heard). This isn't a good thing for all the mortgages near 100% LTV. Definitely don't think it's as good as the initial market reaction.
"The median and average sales prices were up. Caution should be used when analyzing monthly price changes since prices are heavily revised."
Where does this come from?
From AP
"However, the median price of a new home sold last month fell to $229,100, a record 11.1 percent decline from the previous month. The big price decline indicated that builders are slashing prices in an effort to move a huge overhang of unsold homes."
This is actually good news for people like me. You guys, drop those prices. The striking thing about this report is the liquidity of the market. This report was not sticky at all. It also gives insight to what banks will be doing with foreclosed homes.
A surprisingly strong report which must mean that the Martians have arrived and met those surprisingly robust house prices and knocked that supply of inventory on its surprising ass.
It can only mean that there will be a crush to get your RE ticket...so expect unemployment rates to plunge from the already low 4.5% level. But don't take these surprises laying down. Sign your dog up and make it go negative, people.
Here's my take on the numbers and what they mean, for what it's worth. The key takeaway: When you throw "cash on the hood," you move houses. That's what builders did, helping driving home prices down by the biggest margin in 37 years.
When you slash prices and pile on the incentives, you move product. That was the lesson the auto industry taught us post-9/11, and that's the lesson in today's new home sales report. Sales surged by more than 16% and inventory levels fell because builders lopped thousands off the price of their homes. In fact, median prices showed the sharpest year-over-year drop in April in almost 37 years!
The good news: There's still housing demand at the right price. Plus, inventories are slowly coming down. The bad news: Supply remains at very high levels, historically speaking. And if you're looking to sell your house, you're up against some extremely aggressive competition from the new home industry.
Here is a cross post of what I just put up on Zacks.com, sorry if it is redundant with what CR has already put up, but it also contains a few more details.
Dirk
WOW, this was an extremely strong report. New home sales in April soared 16.2% to (seasonally adjusted annual rate) 981,000 from a revised level of 844,000 in March. This is the best one month performance in a long, long time. The good news however is tempered by a few of the details in the report, most notably a sharp downward revision to the March numbers. They were originally reported at 858,000. Still the big gain in April more than offsets the downward revision for March. While the raw level of inventory of new homes was unchanged, the higher sales dropped the months supply back down to 6.5 months from 8.1 months in March. That is a historically high level, but no where near as worrisome as the March level.
The gains were relatively wide spread with three of the four regions posting gains. The Midwest was the exception falling 4.0%. The real mover was the all important South region where sales soared 27.8% from March levels. The West was up 8.5% and the North East was up 3.8%. The other wet blanket on this very strong report was that the median price of a new home plunged to $229,100, down 11.1% from March. The average price declined to $299,100 from $324,700, a 7.9% drop. Essentially all of the increase in sales activity was at the low end of the market. Sales of new homes priced under $200,000 jumped 50.0% for the month, an incredible performance. Sales of mid-priced homes ($200-400K) fell 5.3%, while sales of luxury homes fell 5.9%. Generally houses are lower priced in the South than in the North East or the West, so the regional mix is probably related to the sharp drop in the median price and the strength in the low end houses. This might also be evidence of very aggressive pricing on the part of the home builders.
While it is too early to declare the housing slump over, one monthÂ’s data, especially data with as large an error factor as these (the 90% confidence interval for nationwide sales is plus or minus 13.0% and much larger for the regional indexes) is not enough evidence for that conclusion. However, this was a stunningly strong report, and if it is confirmed by next months report, we may have to rethink our entire position of the housing issue.
If you really want to get a feel for what is going on - using this data as your compass - measure (eyeball guestimate) the area under the curves for sections of time & compare with the same time one year earlier, two years earlier, etc...
My eyeballs tell me the trend is still heading down but doesn't appear to be accelerating... probably decelerating but still declining. That's just a rough eyeball guess.
This month-to-month data ping-pong will drive you crazy if you don't stand back & look at the whole trend.
When you slash prices and pile on the incentives, you move product.
Mike, I disagree with this assessment simply because I made the same argument when this happened in the Spring of last year. Both the price declines and sales increases were revised away as far as I can tell.
I keep saying it: and now the data is maybe supporting the point of view that the builders will build and build, still survive, and it will be the existing house sellers who will suffer the most.
Meanwhile builders are likely to say they are having a hard time of it....while they build and build...perhaps they are suffering but with such big run ups in prices there is money to be made surely?
I just published my take in my blog (click my name for link):
The second stage of housing bust officially started
Posted by theroxylandr under Real Estate , Economics(edit this)
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The very significant event just happened. Today the Census released the astonishing 16% (subject to heavy revisions) increase of new home sales and horrible, unprecedented 11% decline in median and 8% in average price.
One can also say that homebuilders declared the war to existing home market. The 11% price decline across the nation probably means 20%-25% price decline in some hot areas, just in 1 month.
It was already reported many times that in some areas new homes are much cheaper than comparable existing homes. The significant part of homeowners have less than 20% equity in their homes, and another 11%, 20% or 25% decline in price will put millions of families upside-down in their mortgages.
This is massive decline in wealth across the nation, probably in the range of $1 to $2 trillion dollars in just one month. This is already comparable to Nasdaq slump in 2001.
The denial phase of housing slump is probably over. Now we are moving to recognition, panic and then acceptance (that would be the bottom)
CR, you have a typo - prices are down, and down a lot (see above)
We cannot draw conclusions until tomorrow. The digital sign for metro brokers in the capital of the south, Atlanta, has now gone to 108,400 homes listed for sale. Last month it was approximately 102,000 and it has been steadily increasing since February. If inventories on existing continue to go up median prices stay flat then all this number tells us is that the builders blinked first.
From April 2006:
New home sales soar
March gain of 13.8% the biggest in 13 years, showing surprising strength in housing market, but that was partly driven by builders cutting prices.
April 27, 2006: 2:41 PM EDT
New home sales posted the biggest jump in 13 years in March, but sales got a boost as builders cut prices to cope with higher mortgage rates and a growing backlog of houses on the market.
The government reported new homes sold at an annual rate of 1.21 million homes in March, up 13.8 percent from a revised 1.07 million pace in February. That easily topped forecasts for a 1.1 million pace from economists surveyed by Briefing.com...
The median price, which reflects the point at which half the homes sell for more and half sell for less, also fell 6.5 percent to $224,200.
New home sales soar in March but price weakness shown - Apr. 27, 2006
And 2006 didn't turn out to well for housing, did it?
Seasonal misadjustment.
Tomorrow they'll be some surprise upside to existing home sales.
All those forclosures by homeowners who can't sell are simply figments of your imagination.
CR,
If we look at the March report we see that, in the original release, 84 thousand houses sold at an average price of $330.9 K for an implied total revenue of $27,795 K.
Now we have the April report showing 92 thousand houses sold at an average price of $299.1 K for an implied total revenue of $27,517 K.
So the total cash flowing into the home builders is essentially unchanged. Market celebrants should hold the champagne for a bit longer. (Note that I've used the original report's 84 thousand houses, not the revised 81 thousand since we should expect that the average to have changed also -- but we don't know what value to use.)
I think the explanation is that this is a dead cat bounce caused by the price cuts and feature upgrades. People have been holding out but some finally had to scratch that nesting itch. The total number of homes available (new + existing) is still completely out of line with demand, the tightening of credit continues, and the ARM resets are still ahead of us. Thus I think sales will be down YoY less than expected in May and June as due to people having personal reasons to buy and thinking they are getting a big discount, but then will plunge in late summer through the winter for macro reasons.
No ac - Mike is correct. I live in 'sales' and if you cut price & promote like hell you will move product - period. This even applies to snow cones to eskimos.
What happened last year was that sales got 'better' around the peak selling months then 'worse' again in the fall... so the 'annualized estimate' LOOKED better in the spring & summer like it does now and the 'annualized estimate' looked worse in the fall & winter. Really nothing much had changed... just the annualized estimate shifted.
Concentrate on the trends... it will take a quite a few months to tell whether the sales trend is really shifted back up a notch or not... probably won't really know until after August & we are back into the off-season... If Aug-Dec 2007 is below Aug-Dec 2006... then we are still heading down... just maybe not as fast.
Until then be thankful CR is crunching the numbers & we can lazily watch-n-wait.
No ac - Mike is correct. I live in 'sales' and if you cut price & promote like hell you will move product - period. This even applies to snow cones to eskimos.
Check out the link I just posted. I'm not arguing that cutting prices doesn't boost sales, only that this isn't the cause for what we saw this month with the new home sales.
Oops..
"..implied total revenue of $27,795 K."
"...implied total revenue of $27,517 K. "
Change those K's to M's!!
Again, you guys are slightly ahead of the doom and gloom curve.
But what is certain is that if house prices dont pick up then a very very large number of current homeowners who are requiring refi on reset are going to face a very difficult experience
Some of you need to chill out. It's just one month. Even if this report is accurate, it's clear things aren't turning around for home builders yet.
ac posted: "...The median price, which reflects the point at which half the homes sell for more and half sell for less, also fell 6.5 percent to $224,200.
CNNMoney.com: 404 Page Not Found index.htm
And 2006 didn't turn out to well for housing, did it?..."
The median price for this April was $229,100, a +2.18% increase year-over-year from April 2006 (as per the link you provided).
Sebastia
No More Re-Fi ?????
What ever loan you have when comp prices are 11% ON AVG !!! this means that in many many places (especially south Cal) they are down by 15%, 20% and even more.
Even if you had a 90% LTV interst only loan you canot re-fi.
If you had a 95% 100% option ARM you are doomed.
that is the reality. This was a market in which everything was cool as long as prices go up and re-fi every two years.
Change those K's to M's!!
No, just change the comma to a semicolon.
Some of you need to chill out. It's just one month. Even if this report is accurate, it's clear things aren't turning around for home builders yet.
Exactly.
This report reminds me of the record auto sales from a few years ago... enough price cutting & perks and you can move product. And as Seb pointed out the prices aren't even that low yet compared to YTY comparisons. They got room to go down more.
The builders are mining their inventory - land, WIP & finished goods... I'm glad for them. They should be cash flowing like crazy. But we won't know whether they've hit bottom with this & are on rebound or not for a number of months (looking back). We can guess but that's all it is right now.
Also - we won't know how much real damage has been done to them through this whole ordeal until they have to go back & replenish inventory at the new cost & selling price structures... If land has declined enough & labor costs & raw materials are low... and prices don't fall too much more... they'll be fine.
If on the other hand they have to refill the pipeline with expensive land & materials and prices are soft... then the worst is still ahead (from a cash flow and P&L basis). We'd have to be an insider to that info to know & it probably varies from company to company.
Interesting. Make a good biz book someday.
Yal, I don't think we should worry about refi comps until Existing Home Sales come out.
Pat_in_Oh -
That's the exact same viewpoint I take in analyzing what's happening in housing. The only thing (to me) that really matters is the actual volume of money flowing.
I am confused about why people don't just report the volume of money.. that's what influences mortgages, commissions, and everything else.
So, unless you get paid a flat-rate per home to do some job.. an increase in transactions doesn't help much unless the average price does not drop "too much".
Frankly.. if the average price is considered useful.. and the number of transactions is considered useful.. then the combination of the two should be just as useful.
The dollar volume is on the way down.. and it is continuing down.. fairly simple.
No, the median price is down from 257,600 in March to 229,100 in April.
http://www.census.gov/const/newressales.pdf
This is 11% down.
Pat_in_OH - I've quoted you in my blog, thanks for great observation!
dryfly said: "...And as Seb pointed out the prices aren't even that low yet compared to YTY comparisons. They got room to go down more..."
They've got room to go up more instead of down more, but whatever.
The year-over-year comparisons are going to gradually improve as the year progresses.
Sebastia
That's the exact same viewpoint I take in analyzing what's happening in housing. The only thing (to me) that really matters is the actual volume of money flowing.
And money flowing out. There is a COGS counterpart to revenue that is at least as important.
Ironic that bond yields are rising in the face of this "good news", which is not good for a "bottoming and on the mend" housing "recovery".
They've got room to go up more instead of down more, but whatever.
The year-over-year comparisons are going to gradually improve as the year progresses.
No chance in hell.
They have no pricing power left, not with existing inventory out there and the REOs coming on stream & not with the 'price rise' psychology momentum broken and now with people expecting all the perks thrown in for free. I have a number of buds in this biz - the climate has changed... probably for a long time.
This is very much like the zero financing rebate issues the automakers found themselves in. You can't produce your way out - instead you practice scorched earth strategies, hope your competitors fail and let the demand build to regain pricing leverage.
Just don't be one of the ones that fail... That's where they are now - believe me.
Tanta,
Why ?
don't you think new home sales stats set a price trend ?
Tnx,
yal
Builders move homes by taking trade-ins
Glen Creno
The Arizona Republic
May. 23, 2007 12:00 AM
Having trouble selling your house so you can buy that new dream home? No worries.
Some builders will let you trade in the old place as part of the deal for a new one.
Builders frustrated by customers canceling deals are coming up with aggressive ways to keep them. Some are offering trade-in programs. Others are giving sales guarantees on existing homes. It's a switch from their traditional role in the house deal: building and then selling them. Now, builders are taking a more active role in clearing the way for buyers to purchase their homes.
Cancellations shot from 1 percent in January 2005, the midst of the housing boom, to nearly 29 percent in March, according to Hanley Wood Market Intelligence, a real estate and new-home construction consulting firm in Costa Mesa, Calif.
At Scottsdale-based Meritage Homes, cancellations stood at 28 percent. At KB Home, it was 31 percent. Pulte Homes lost 25 percent of the sales to cancellations in its Southwest division, which includes Arizona.
Valley housing analyst RL Brown said a 15 percent rate is an acceptable industry standard,
Move along folks, nothing to see here.
Alec - I have been looking for that to happen. I've been saying all along that housing market was morphing into the auto industry... and we'll know it when the give rebates, free options and allow for trade-ins... I was waiting for the 'trade-ins'... the last domino to fall.
And we all know the US automotive industry is role model to follow. I wonder how long until the Japanese come over and teach 'us' how to build energy efficient, affordable, high quality homes?
No chance in hell.
Sebastien, let me rephrase that...
No chance that they have room to go up much in price... noise will bounce the price numbers around up and down some (product mix, etc.) but there is way too much downward pressure on pricing to see big increases.
I do believe new home UNIT SALES numbers year over year comparisons will improve as producers continue to force 'houses off the lot'...
If they want to hold pricing firm; it will only come at the expense of sales numbers. They won't get both sales numbers & price - not yet. Someday it will be back but not soon.
So they're selling them cheap and losing money but making it up on volume?
Housing in Japan really sucks - it's cramped and poorly heated.
America knows everything it needs to know about efficient, affordable housing and has for a while. It's just that almost nobody here wants quality. Everybody here wants a 5000 sf McMansion with poor finishes and poor insulation, not a 2000 sf home with high-quality finishes and good construction.
And then there is whole car-dependent suburb problem.
New home sales "surge" in April yet homebuilder confidence is extremly low, according to the most recent survey?
Why?
I guess given the recent plunge in prices, the homebuilders have seen a "surge" in cancellations.
Dryfly said...
"...enough price cutting & perks and you can move product."
Amen brother, been there and done that. When people get desperate enough they liquidate inventory at whatever it takes -- all the way down to their marginal cost if necessary. Remember that, to the extent the land and its improvements are sunk costs, the HBs really only need to recover the incremental costs of building the next house(here I'm ignoring any debt covenants etc.). So the question arises -- just how badly do they need cash?
"There is a COGS counterpart to revenue that is at least as important."
Yes there is, but I believe it's the cash costs that really matter in a crisis.
Fred - new housing in Japan is fine. Small but that's what happens when you live high density.
Its the older stuff (and some of it is quite old) that is poorly built & inefficient.
Similar thing in Europe - my wife has relatives in Norway and has seen their homes. New stuff is fabulous... old stuff is, well, 'rustic'.
But as for us knowing how to build... we also knew how to make cars too (still do)... management wasn't then and still isn't focused on that as much as the 'financial engineering' associated with running a large company like an automobile mfgr.
Same thing applies with building indusry & their exec's... they don't know what a hammer (or air nailer) is. They know a bonus when they see one though.
If they face real competition - product offering and price - maybe that changes. Maybe that competition has to come from outside the existing industry participants to change the model... That was my point.
Place me in the camp of those who see the builders taking a bite out of existing, which is something that is part of every serious RE downturn.
Even with that I am somewhat taken aback by the volume and expect a very significant downward revision. I haven't climbed into the report yet, but as Dirk points out, sales gains in the west and NE accompanied by a price drop is quite an anomaly.
With so much of the gain concentrated at the bottom, there is some economic sense to the data. A sale price under $200K combined with a decent interest rate does fit well as an economic wash or at least close to it with monthly rent expense.
Yes there is, but I believe it's the cash costs that really matter in a crisis.
Absolutely - we are singing from the same hymn.
My point is without knowing COGS (especially how much is sunken-fixed vs cash-variable)... we can't know much more from the revenue numbers than the unit sales numbers... so unit sales are pretty good proxy & easier to tally.
But you can bet their sales folks are getting the ABCs every day all day (for you non-sales geeks 'always be closing').
God I'm glad I'm not them - it would suck to be them.
The analogy to zero-percent auto loans, and rebates, is a good one.
The problem is that you cannibalize tomorrow's market to get your money out now. And "tomorrow's market" includes all those folks hoping to sell existing homes.
Dryfly said...
"God I'm glad I'm not them - it would suck to be them."
Yup. Lots of businesses have been through an experience like this and it's never pretty.
"Maybe that competition has to come from outside the existing industry participants to change the model."
Fair enough, though I think a catalyst (probably consistently high energy prices) will have to emerge before people will accept a different housing pattern from what America has now.
To be fair there are lots of nice condo projects going up in urban areas around the country, but that is small portion of the market consisting mostly of childless singles and couples at the higher end of the income scale.
Non seasonally adjusted April year over year sales are down from 100 to 92.
I did an analysis of a subdivision here in Sacramento back in January comparing builder and resale pricing:
Priced to Sit Part V: Lincoln Crossing Revisited
The builders in Sacramento have been undercutting the resale market for almost two years now.
are existing homes and new homes substitutes?
on the surface one would think but overall, doesnt old vs new represent growth patterns and migration resulting in a bifurcated market much different than new car vs old car?
i.e. i can look around in a 10 mile radius and barley see any new homes. sure there are condo buildings but not like the scale of the exurbs.
if you needed to live in a certain place, you live there. if its new its new if its old its old.
right?
if you needed to live in a certain place, you live there. if its new its new if its old its old.
It depends on what you mean by "place". I know people that commute 50 miles (one way) to work. If you draw your radius out a little further, you're probably closer to answering your own question.
ok ok. i get it now. its like when people in a condo building are trying to sell when the developer is releasing more units for sale.
sorry guys - ME URBAN no SUBURBAN
Builders taking trade-ins. Oh, you want to see an example of an appraisal that makes grown underwriters cry?
And we worry about lenders dumping REO on an unsuspecting resale market. You wait until the builder trade-ins come on line.
Yeah, I can't really visualize what the builders are going to do with a bunch of trade-ins, when they can't even move what they have... Fire sales? Deep discounts? How's that going to work?
"Fire sales? Deep discounts? How's that going to work?"
Maybe just fires. Supply destruction!
Nothing like a little Philadelphia lightning to clear out the housing supply.
Rational home builders must clear inventory. External factors such as liabilities, payrolls, expenses,etc. compel them to move the excess even at lower price. Why would the homebuilders unload if their forecasts indicate an improving market climate? The number today reflects this rational behavior. The individual homeowners, unless motivated to sell, hold out believing the conditions will improve. The homebuilders act rationally while existing homeowners don't! The downward pressure, lower price, will now begin in earnest. To sell one must lower price. The generals are fleeing and little soldiers are left defending the fort.
COGNITIVE DISSONANCE?
Amazing to read the comments...and it makes a sceptic feel good to see... that the reaction is of course to doubt the data... IT CAN'T BE RIGHT..
But while one can "doubt" the data, the data it is.. and "rationally" one would also have to diminish the certainty with which one held his own convictions..s
At the very least no can can walk away from today as certain as he was yesterday bout the state of housing....
All of a sudden realizing that the data we have is so volatile as to be near useless...is even more reason for putting a Bayeian probability on the possibility that our premise might be incorrect...
By the way prices for houses over 200,000 dollars were basically unchanged to up..
And in reality those are the only ones that have any economic impact..
At the very least no can can walk away from today as certain as he was yesterday bout the state of housing....
Ummm no. That would only be true if you didn't look at the overall TREND today or yesterday... i.e. didn't look at the curve on CRs chart over time. Really nothing has changed much at all between today and yesterday. Nothing. Noise up, noise down.
You say homes over $200K don't matter? Well those are the ones that didn't sell well... the cheap unimportant ones were the ones floating this BODACIOUS report.
Talk to me in August about the state of housing... by then we will have a better idea if this is the turning point or just another head fake.
Phyron - they did this last year, then heavily revised the numbers down later when it wouldn't make headlines....it's not like there is zero precedent for expecting the data to be revised downward. So yes, it could be revised up instead of down next, but I think the chances are slim and none, and Slim just left the building.
One month of data is of limited value - whether strong or weak. Markets are lumpy. It is natural.
Inventories are still high, and the price slump should continue until the excess supply is absorbed. I expect that process to take another two years.