Monday, February 27, 2006

The Hard Reality Of The Softening Market

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New residential sales figures were released today in a U.S. Census Bureau report (in pdf format), revealing that the inventory of new homes on the market in January was up 20 percent from the same time last year. This despite one of the warmest Januarys on record.

The summary of the Census Bureau report was as follows:
Sales of new one-family houses in January 2006 were at a seasonally adjusted annual rate of 1,233,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.0 percent (±11.5%)* below the revised December rate of 1,298,000, but is 3.3 percent (±16.9%)* above the January 2005 estimate of 1,194,000.

The median sales price of new houses sold in January 2006 was $238,100; the average sales price was $291,600. The seasonally adjusted estimate of new houses for sale at the end of January was 528,000. This represents a supply of 5.2 months at the current sales rate.
The response from the real estate industry was what you might expect. The warm weather was spun as a scapegoat, the explanation being that it was good building weather. With all those hammers swinging, the numbers were supposedly thrown out of whack because the Census counts new homes from the time the permit is pulled.

It will be interesting to see what happens with the February numbers after the arctic chill that zapped much of the country in the middle of the month.

Here's an excerpt fromCNN:
The pace of new home sales slowed in January, according to a government report Monday that included the latest sign of a growing glut of new homes on the market in some areas.

The Census Bureau reported that new homes sold at an annual rate of 1.23 million homes in the month, compared with the revised 1.3 million home pace in December. Economists surveyed by had forecast that January new home sales would remain little changed at the 1.27 million pace originally reported in December.

The report showed there was a 5.2 month supply of new homes on the market in January at the current pace of sales, as the number of new homes available to be sold rose to 528,000. That's up 2.5 percent from December and up 20 percent from the number of homes available in January 2005.

The report marked the first time the supply of new homes crossed the five-month mark since November 1996, according to historical data from the bureau. The market had an average of a 4.5 month supply of home on the market throughout 2005.

David Seiders, chief economist for the National Association of Home Builders, said it is too soon to say there is a glut of new homes on the market. But he said the latest report does confirm other readings that show a softer market for new home sales than seen during the record pace set last year, when a total of 1.29 million new homes were sold.

"There's been a definite upswing in the inventory level for some time," said Seiders. "The months supply was held steady by a pretty strong sales pace. The big reason for the big uptick in months supply is the slowing sales pace."

— The Boy in the Big Housing Bubble