Tuesday, November 29, 2005

October New Home Sales Hit Record

New Home Sales Hit Record Level in Oct.

Sales of new homes soared at a record pace in October in what could be a last hurrah for the booming housing market.

The Commerce Department said that sales of new single-family homes shot up by 13 percent last month, the biggest one-month gain in more than 12 years. The increase pushed sales to an all-time high seasonally adjusted annual rate of 1.42 million units.

The increase confounded analysts who had been predicting that new home sales would decline by 1.8 percent, reflecting continued increases in mortgage rates. It was possible that the unexpected surge reflected a final rush by buyers to get into the market before mortgage rates climb higher.

Link to the Census Bureau Report:
October New Residential Sales

I'll let you folks draw your own conclusions. I expected a much more significant decline, both in sales numbers and median price.

Caveat Emptor,
Grim

26 Comments:

Blogger grim said...

According to Briefing.com/Yahoo:

The report indicates the level of new privately owned one-family houses sold and for sale. New home sales usually have a lagged reaction to changing mortgage rates. They also tend to be stronger early in the business cycle when pent-up demand is strong, and they fade later in the cycle as the demand for housing is sated. In addition to home sales, the market monitors the number of homes for sale relative to the current sales pace. As this inventory measure falls (rises), housing starts tend to rise (fall). Finally, the median home price provides an indication of inflation in the housing sector, though only year/year changes provide any meaningful information.

The home sales report is quite volatile and subject to huge revisions, making any one month's reading very unreliable. The report rarely prompts a market reaction. The market prefers the existing home sales report, which has a sample data pool four times as large and is released earlier in the month.

11/29/2005 10:37:00 AM  
Blogger grim said...

Yields jumping back up in the bond market.

This, along with other recent economic data, gives the Fed more reason to keep pushing rates upward.

grim

11/29/2005 10:49:00 AM  
Anonymous Anonymous said...

In the town where I live (Iselin in Woodbridge township) the new homes seemed to be inventorying up for sometime. But since the really old homes (50 to 60 years old) have jacked up their asking prices so much (350 to 450K), it is possible that new homes at 100 to 200K more are starting making more sense. Also I saw a decline in the prices of new homes over this year. New homes used to be listed 525K+ a few months ago but I now see some new homes listed at 470K onwards. With interest rates still affording more room, perhaps the attention would turn to the new homes. I follow the prices at www.realtor.com.

11/29/2005 11:14:00 AM  
Anonymous Anonymous said...

Historically, new home sales are more of a leading indicator than existing home sales. Much as I would like to say that the bubble has burst, this report seems to indicate otherwise. Its important to be objective and unfortunately, this report is so much stronger than expected (43% rise in the Northeast !!) that I think the bubble may last even longer.

What this means for NJ numbers is another story. We know that NJ has cooled off, and we do have numbers to that effect.

It may be that with gas prices falling and consumer confidence rising, we see another final bubble jump.


Also, these are single family homes, and those are not typically driven by investors.

11/29/2005 11:31:00 AM  
Anonymous Anonymous said...

Hang on a moment -- the 43% rise in the NE is from the last month. From October 2004, there is a 16.5% decline in the NorthEast.

While the jump from last month is still pretty high, on the whole new home sales in the North East still declined.

11/29/2005 11:41:00 AM  
Blogger grim said...

These numbers are largely useless. I didn't catch the level of variance in the estimates until after I posted.

Read the first paragraph of the census report over again if you haven't.

This is 13.0% (+-17.7%) above the revised September rate...

This means the actual number falls somewhere between a -4.7% decline and a 30.7% increase. With a range that wide, it's almost negligent to these estimates.

So which is it? Neither, these numbers are entirely worthless.

jb

11/29/2005 11:42:00 AM  
Blogger grim said...

From an engineering perspective..

"Yes sir, we're 90% certain this 100 million dollar expedition probe will land on Mars, err.. well.. actually.. more accurately.. somewhere within +/- 17.7% of Mars.."

:)

I agree, we can't throw out numbers we don't like. However, we need to understand the nature of the number before we can trust it.

jb

11/29/2005 12:10:00 PM  
Blogger chicagofinance said...

All you need to consider:

NASDAQ
3/10/2000 5048
3/15/2000 4582
3/24/2000 4963
4/5/2000 4149
4/14/2000 3321

As grim noted, we have no confirmation as to the veracity of these numbers anyway.

I WILL say that do not let your overall conclusion cloud your judgement. You must remain objective in order to prevent ignoring the information that doesn't support your viewpoint. Just because history, economics, and logical is on your side doesn't mean that this situation will unfold in the way we expect or at the velocity we would hope.

11/29/2005 12:14:00 PM  
Blogger grim said...

The market doesn't believe these numbers either. The HB stocks initially rallied quite spectacularly shortly after this data was released. I believe TOL alone hit over 4%, a signficant spike. However, shortly after 10.30, the rally collapsed and TOL now sits at a daily gain of 0.17%. The entire rally wiped out.

If this data was so positive, why didn't the homebuilder rally stick?

11/29/2005 12:14:00 PM  
Blogger grim said...

I agree, we can't dismiss data. Grim Ghost and ChicagoFinance are correct. Just because we were hopeful of a negative report, we can't dismiss it, we need to be objective about the numbers.

So what do you all think about the numbers? Does this mean the housing boom will continue onwards? Was this just a last chance blip by desparate buyers?

grim

11/29/2005 12:40:00 PM  
Blogger chicagofinance said...

It is obvious to me that pain has yet to be inflicted.

Potential buyers are CHOOSING not to buy, but they still have the means. Pain occurs when people CANNOT buy.

Sellers are playing with "house money" and are merely CHOOSING to shave the size of their gains. Pain occurs when sellers sell at a loss, and MUST move to a smaller home in a less desirable area.

Have we seen carnage yet? Not at all.

Other factors: people we spooked by energy and the FED, but may be mistakenly emboldened by the seeming status quo.

The manner that this situation is unraveling is so unfortunate, because the potential bloodshed increases with every mirage that appears :(

11/29/2005 01:32:00 PM  
Anonymous Anonymous said...

Lots of Fools always buy at the top of a bubble. Notjing ever changes.
Just looked at the sherriff sales starting to pick up. One sucker has a $600,000+ liability.

HAHAHAHAHAHA

11/29/2005 01:55:00 PM  
Anonymous Anonymous said...

Check out the report from USA TODAY - http://news.yahoo.com/s/usatoday/20051129/bs_usatoday/housingsalesslipasinventoriespricesincrease

"The overall number of units on the market is the largest since April 1986."

11/29/2005 01:56:00 PM  
Anonymous Anonymous said...

Records are a perfect indicator of bubble tops.

Just look back to march 2000. NASDAQ market top. Margin borrowing hit a record level of $275 billion near or at the eaxct top in the market.

Looking forward to the cascading decline. The first wave down is fast and brutal.

11/29/2005 02:00:00 PM  
Blogger grim said...

Anyone care to speculate on the personal savings rate data expected this Thursday? Are we going to be negative again?

11/29/2005 02:11:00 PM  
Anonymous Anonymous said...

There was an article about the tremendous incentives that new home sellers like Toll Bros. were offering in the paper a week or two ago...in this weekend's paper the incentive was "We'll pay your mortgage till Jamuary 2006".

While I hate new developments, I have to admit that I researched the ones making that offer to see if there were any homes of interest. I agree with the above posted who alluded to the fact that the new homes DO offer more for the money than most existing homes right now, with their avocado appliances and wallpaper. I'll be damned if I'm going to pay $700K for a house I need to put lots of work into if for $750K I get a pristine turnkey house. Having 4 dogs and valuing land and privacy like we do, new homes really aren't an option. But for most families, I would think that a spanking new home with free mortgage for a year, or a free gold club membership, or with the other free incentives, may have partially contributed to today's numbers.

This is obviously an anecdotal hypotesis, but it might help explain part of the discrepancy in new vs exisiting.

11/29/2005 02:21:00 PM  
Anonymous Anonymous said...

Stupid question: When available inventory figures are quoted, do they include new homes, or only resales?

11/29/2005 02:23:00 PM  
Blogger grim said...

Treasuries Fall After Consumer Confidence and Home Sales Rise

Futures on the federal funds rate show traders have fully priced in an increase to 4.25 percent at the next meeting on Dec. 13. The odds of an increase to 4.5 percent at the following meeting on Jan. 31 are about 84 percent, up from 80 percent yesterday. For March, the odds of a 4.75 percent rate that month rose to 56 percent from 36 percent.

Looks like the market is moving to price in 3 more quarter point hikes.

grim

11/29/2005 02:28:00 PM  
Blogger grim said...

Anecdotal reports country wide of builders offering huge discounts or credits on upgrades.

Agree, all smoke and mirrors to ensure the median home price stay elevated. These builders could easily (and significantly) underprice recent sales to move inventory. Unfortunately, those tactics will have a clear impact on consumer psychology.

jb

11/29/2005 02:52:00 PM  
Anonymous Anonymous said...

Note sure what this forecasts. anyone?

Mortgage limit raised to $417,000
(The 2005 limit is $359,650)
http://news.yahoo.com/s/nm/20051129/bs_nm/financial_mortgages_limit_dc_2

Is this the fed trying to help un-screw smaller banks?

11/29/2005 02:53:00 PM  
Anonymous Anonymous said...

@ Grim Ghost,

Sorry, that was January 2007.

My bad.

11/29/2005 03:05:00 PM  
Blogger grim said...

Anth,

That move was largely expected, many lenders already pushed up their jumbo loan limits months ago in anticipation of this move.

jb

11/29/2005 03:21:00 PM  
Blogger grim said...

Seems I at least beat MarketWatch to the punch..

Betting on the bubble

Analysis: Data on home sales open to interpretation

...

Indeed, according to the Commerce Department, it's not certain that sales rose at all during October. The confidence interval for new-home sales was 17.7% in October, which means sales could have risen as much as 30.7% or fallen as much as 4.7% and still be within the normal range. The government says it takes six months to establish a new trend.


grim

11/29/2005 04:06:00 PM  
Blogger grim said...

Motley Fool also voiced concern over the census numbers.

Housing Roars Back? Not So Fast.

Not so fast. Check out the fine print on the commerce department's report -- something the headline writers out there will never do. If you look past the breezy conclusions in the media, you'll find out just how reliable these latest data are.

Which is to say, they aren't reliable at all. The reality is this. The monthly sequential sales number is a 13% "increase" subject to a margin of error of plus or minus 17.7%. The year-over-year "increase" of 9% is subject to a margin of error of plus or minus 18.2%.

That means that it's not proper to call these "increases" at all. They could, in fact, be decreases. (Alternatively, they could be much larger increases.)

It's incredible to me (or is that appalling?) that anyone might make a major financial decision, like a stock investment or home purchase, under the influence of such ambiguous figures. What's worse is that the news sources out there can't even be bothered to explain that they are ambiguous. But then, news editors are often loath to let reality and its pesky details get in the way of a story. "The answer is unclear" just doesn't fly.


jb

11/30/2005 06:31:00 AM  
Anonymous Anonymous said...

New house sales up!! Not so fast. In most parts of Florida it takes 9-12 months to build a house from contract. Sold mens at "Closing". Thus the sales figures are realy 9-12 months ago...........Stale data.

11/30/2005 05:15:00 PM  
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4/19/2006 12:37:00 AM  

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