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Guest Post: New Home Sales - Not As Strong As Headlines Suggest
Submitted by Lance Roberts of StreetTalk Live,
"New U.S. single-family home sales surged in September to their highest level in nearly 2-1/2 years, further evidence the housing market recovery is gaining steam. The Commerce Department said on Wednesday sales increased 5.7 percent to a seasonally adjusted 389,000-unit annual rate — the highest level since April 2010, when sales were boosted by a tax credit for first-time homebuyers."
That was the headline paragraph from CNBC following the release of the New Home Sales report from the Commerce Department this morning. As we discussed recently in our post on Housing Starts and Permits the euphoria around the entire real sector is still very premature.
The headline number that is released is a seasonally adjusted and annualized number based on the actual month to month data. The Commerce Department reported that sales of new homes increased 5.7% to 389,000 in September. This increase against August's downwardly revised pace of 368,000-units. However, in reality there were only 31,000 ACTUAL new homes sold across the entire United States in September. This is the same number that was sold in August and down from the 35,000 units sold in May. In other words, the entire 5.7% increase in new home sales in September was strictly seasonal adjustments.
The chart below shows the "housing market recovery" in perspective to historical levels on both a seasonal and non-seasonally adjusted basis.
While the media trumpets that the sales increase adds to signs of a broadening housing market recovery, as we pointed out previously, it is not translating through to the economy. More importantly, the current levels of sales, while up from the lows, can hardly be called a recovery relative to previous normal activity levels. However, I digress; let's get back to the data.
In the month of September we know that 31,000 homes were sold nationwide. Terrific. What is more important to know is what TYPE of homes were sold. There are two ways to look at this - price and stage of completion. The first chart below shows the number of new homes sold by price level.
In the month of September there were:
- 4,000 sales in the sub-$150k range - up 1,000 from August
- 6,000 sales between $150k-$199k - up from 5,000 previously.
- 10,000 sales between $200k-$299k - DOWN from 11,000 in August.
- 5,000 sales between $300k-399k - up from 4,000 previously.
- 2,000 sales between $400k-$499k - DOWN from 3,000 in August
- 2,000 sales between $500k-$749k - DOWN from 3,000 in August.
- 1,000 sales above $750k - up from ZERO in August.
(Note: These numbers are rounded which is why there is a 1,000 sales difference between the breakdown and the total new sales of 31,000 in September)
As you will notice 2/3rds of all sales are occurring in the lowest priced homes. The benefit provided by the Fed's exceptionally low interest policy is allowing for purchases of more expensive priced properties (the $200k-$299k properties) while wages have remained stagnant in recent years. This is why any real rise in borrowing costs will quickly suppress purchases at the upper end of lowest 1/3rd of priced homes as home buyers are priced out of more expensive homes. Remember - individuals buy "house payments" and not "home prices."
The next chart shows new home purchases by stage of completion - Not Started, Under Construction and Completed.
Out of the 31,000 new homes sold in September:
- 11,000 of the sales were "Completed" construction which was the same level as August but down from 12,000 in July.
- 10,000 were categorized as "Not Started" which was up 2,000 from August back to July levels.
- 10,000 were homes that were "Under Construction" which was down 2,000 from August and down 3,000 from June.
The point here is that real activity in the construction market remains at extremely low levels. While the media, and real estate industry groups, watch all the various types of housing data closely when it comes to the economy - it is the construction of new homes that have the most economic through put. However, as showed in our previous article on housing starts, there has been no pickup in residential construction employment as the demand for new construction remains at VERY suppressed levels.
When it comes to the reality of the housing recovery the following 4-panel chart tells the whole story.
While the media continues to push the idea that the housing market is on the mend the data really doesn't yet support such optimism. The current percentage of the total number of housing units available that are currently occupied remains at very depressed levels. Furthermore, occupancy has only risen slightly from its recessionary lows. However, the increases in the occupancy rate have primarily been filled by renters which has surged to nearly 30% of all housing units. Owner occupied housing remains just a smidge above its lows while vacant housing units remains near its peak. With home ownership today at its lowest levels since 1980 - this can hardly be called a housing market in recovery.
There is another problem with the housing recovery story. It isn't real.
The nascent recovery in the housing market, such as it has been, has been driven by the largest amount of fiscal subsidy in the history of world. From bond buying programs to suppress real interest rates, modification programs and tax credits to artificially boost demand, and the Central Banks ultra-accommodative monetary policy stance it is not surprising that housing has ticked up. The problem, however, is that for all of the financial support and programs that have been thrown at the housing market - only a very minor recovery could be mustered. What happens when those supports are removed? Or maybe the real question is whether these supports CAN be removed?
Regardless, without full-time employment growth at a rate greater than population growth, real wage recovery, and a deleveraging of the household balance sheet, there cannot be a lasting recovery in housing. With household formation at very low levels and the 25-35 cohort facing the highest levels of unemployment since the "Great Depression" it is no wonder that being a "renter" is no longer a derogatory label.
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In other news, seasonal volatility is waaaaay down.
Stability has arrived!
Repeated from my post on prior article, as I know this industry well, and the level of deception promoted by cnBSc and other hopium pushers disgusts me.
This is an abysmal annual rate of sales even on a seasonally adjusted basis.
Remember that the annual rate of NEW HOME permits was 2.1 million units in 2006 [I mistakenly said sales previously, but there were 2.1 million permits issued for single family housing units in 2006, and I shall find the actual completed sales rate for that year and 2007, as well]. - edit: Quick & dirty check shows about 1.4 million new homes sold on annualized rate as of May, 2006: http://photos1.blogger.com/hello/243/2888/640/NHS7Aug2006.jpg
We are talking depression levels housing sales with these latest datum, so I can't fathom how any entity or person can trumpet this level of sales as anything that's remotely indicative of strength, let alone not indicative of extremely anemic.
Once one factors in the multi-unit residential sales, many of which are the result of subsidies from government agencies, both to builders and buyers, and then considering the rampant levels of mortgage fraud (...surprise!, It's back) not only in the new home market, but also in the existing home market (see "flopping" as an example), which has an impact on the new home sales' levels, this is an abomination.
FHA loans only require 3.5% down, and mortgage rates are at historic lows, and these are the best numbers new housing sales can post? AWFUL, and very revealing about how spectularly bad the actual economy truly is.
(I've also heard the meme from realtors and sheeple that existing houses are selling fast and inventory is constrained. Well, yes, that's what a massive shadow inventory sitting on GSE shelves-- and now the Fed's balance sheet-- thus reducing foreclosures AND inventory, along with underwater homeowners who would list their homes if they could afford to sell them, will do).
Consider also that the best season for new home sales (i.e. the actual transfer of the deed to owner or mortgage lender) is the period just prior to the start of school in late August through October (some people miss the back to school deadline by a few weeks or a month inevitably), and these sales' numbers are simply incredibly bad.
The most worrying aspects to these latest datum is that housing is now being talked about again as "taking the baton" from manufacturing as a core industry to lead U.S. GDP growth, when anyone who understands economics 101 knows definitively that housing is not an industry that should be viewed this way, given that its health depends on the true rate of growth in employment and wages elsewhere, and any attempt to portray the housing industry as anything other than dependant upon and derivative of the real health of the real, core economy, is absolute lunacy.
The housing bubble became a bubble because unit sales of new homes and their prices were rising despite the fact that jobs and wages in other key areas of the economy were being gutted, and a cycle then ensued that hid that destruction whereby people who lost jobs or suffered reduced income in non-housing sectors of the economy shifted into the housing sector, thus depending on ever increasing sales and prices in new homes to maintain their employment and income.
The housing market (especially new housing) is a derivative and NOT A DRIVING CAUSE of the true health and growth of the economy. So many pundits fail to grasp this relationship. A prime case study of this is the Spanish housing bubble, which was epic, and which provides clarity as to how housing is never a sustainable driver of economic growth (if the economic growth isn't happening in sustainable portions of the economy, housing will collapse or remain comatose).
These equal depression level new home sales even if the highly massaged and manipulated headline number is assumed to be accurate (which, of course, it's not).
you make several good points. one i would like to elaborate (idea from john hussman): the extreme constriction of inventory of used homes by the banks and the underwater owners makes the prices of used homes higher than they would otherwise be. this makes the attraction of new homes greater than would otherwise be the case, making their numbers better and those of the existing home sales worse.
truthinsunshine: +1
The real estate market will be slow to dead for the next decade. Gold and Silver are the places to be.
Protect your wealth
Tylers! I wonder when THIS will be one of your big headlines, the MSM is finally paying attention...
"Four Died, and Obama Lied"
http://tinyurl.com/8bp9bot
Chris Tingle Mathews told that young man everyone knows it was the video.
Three people are now confirmed dead after gunfire erupted near a Downey business today, and two others are in critial but stable condition — including a 13-year-old boy, police said this afternoon.
as i imagined a lot of people putting houses on the market in my area. first sign of optimism i knew there would be a dump
Truth in Sunshine I have been a contractor for 25 yrs and I agree with everything you stated
Thanks.
I often find that the people who challenge me when I convey the points above cite as their main reason for doing so that they "see new homes being built," "know people buying a new home," etc. They may even claim to see "more new construction than last year" or "more buyers of new homes now than in prior years."
Those things they see aren't necessarily false (although they could be misleading, anecdotal things that allow them to more easily believe the misleading green shoots' headlines).
I often tell people that even during the worst of recessions and even depressions, there's still economic activity. There are still people eating at restaurants, buying cars and homes, and even investing. It isn't as if everything goes dark.
The main point is that when attempting to accurately judge the true state of health of the economy, real, accurate numbers matter. It's nearly meaningless to "see what appears to be more new construction of houses than last year" in one's city. It's far more telling to discover what the absolute number of new home sales are locally, regionally & nationally (not to mention the price points of homes sold, permits pulled, etc.).
I personally believe that new home sales, as anemic as they are on a national basis, are being propped up by unprecedented interventionism in the form of historic low mortgage rates, which is a product of radical central bank meddling with interest rates, direct government subsidies to both builders and buyers (the 1st time buyer home credit, as well as the current 3.5% down FHA loan, are two prime examples of this), and other forms of massive government stimulus, which merely pulls demand forward, thus nearly guaranteeing that nothing will stabilize, and no form of natural supply/demand cycle will return for a very long period. Everything will remain distorted, uneven and "lumpy," for lack of a better term.
And this all leads to massive uncertainty on the part of home owners, potential home buyers, potential home sellers, builders, lenders, etc.
Well said.
Housing is better. If you think it true , it will be true.
Is someone giving away free bongs?
It all depends on the election.
Obama will spin the numbers as high as he can before the election.
If Obama wins, maybe a slow gradual unveiling how bad the numbers really are, say by Spring 2013.
If Romney wins, then he'll immediately try to spin the "real" numbers as low as he can, so that when it's time for his re-election bid in 2016 (if we still have a country), he can then spin them high again to make it look like he has made progress.
There. Now you can forget about all this Zero Hedge stuff and go back to the World's Series.
This article is rubbish,I only trust real estate agent and economists employed by banks
http://ochousingnews.com/wp-content/uploads/2012/10/realtor_kool_aid.jpg
Yes,changes are depend in seasonale and non-seasonable events and prices would be depend on this and also depends on election so people attract to that party and will get votter more for win...people need to understand that ajenda.
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