New home sales up ... or possibly down
There's a lot of woohoo-ing over the news that sales of new homes in the U.S. rose 11 percent in June, compared with the month before. "The worst of the housing recession is now behind us," David Resler, chief economist at Nomura Securities, told The Associated Press.
This may be. Certainly there are other hopeful signs, even amidst the dour news of layoffs. But you probably don't want to hang your hat on that 11 percent increase because the federal government estimate comes with a big asterisk: plus or minus 13.2 percent.
That's right: Home sales might have increased 11 percent, or maybe they're up 24.2 percent or down 2.2 percent. As the press release helpfully notes, "The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero." In wonk-speak, that means the change is not "statistically significant."
The change in new-home sales from a year ago is big enough that the Census Bureau is comfortable that it's not zero. But that estimate is a 21.3 percent drop.
Hmm ... what's the opposite of woohoo? Oh yes.
Doh!
Economists seem to be hanging their hat on the trend, which is positive for the past three months. Not considering the margin of error, of course.
I was hoping for something a bit more hopeful, and also more local, so I turned to new-home permits issued in June. (The federal government tracks that measure of planned construction in our area as well as nationally.) Builders got permits for 442 units in the Baltimore metro area, down 16 percent from a year ago.
Now, I realize that doesn't sound like a woohoo-worthy statistic -- unless you're in favor of less building -- but it's a much smaller drop than the one nationwide. U.S. new-home permits fell 37 percent, according to the government's unadjusted numbers.
And new-home permits in the metro area actually rose a tiny bit in May vs. a year earlier, up by 9 units.
I don't know if it's something to hang your hat on, but it's worth noting.
Comments
I'm not sure how you can put out statistical data suggesting anything credible with a +/- of 13%. That is ridiculous and I can't believe I didn't notice that when I was reading the article. Now I’m interested to see how they even came up with the 11%
Posted by: M | July 28, 2009 8:16 AM
Bed goes up, bed goes down...
Posted by: JTK | July 28, 2009 8:50 AM
Well, the denominator (i.e. bottom line) must be looked at. With a large dose of perspective.
The 11% increase - which looks huge - was a net jump of 3,000 homes for one month - from 33,000 to 36,000. Meanwhile, at the bubble peak, there were 125,000 new home sales per month. Granted, any uptick is good, but needs to be taken in perspective. After all, 11% of a dollar is only 11 cents!
Also, we are currently averaging around 10,000 foreclosures PER DAY which certainly has put downward pressure on home prices, and contributed to an uptick in sales.
I still beleive in an eventual reset to late 1990's prices. I think (and hope!) that the downward spiral will begin again this fall. I suggest that those who need to sell ride this morsel of "good" news, cut their losses now, and get out!
Posted by: Darwin Rules | July 28, 2009 12:57 PM
A couple of points:
1) I think the significance in the uptick is more that we are nearing the end (or have already reached the end) of the activity valley. (i.e. people are finally starting to buy again - which means builders are going to finally be able to build again). Not that properties are flying off the shelf.
2) Existing home sales also jumped 447k to 523k homes sold.
3) You can probably assume the prices will continue to slide until home inventories reach mid-cycle levels. That's 5.5 months of new home inventory and 4.5 months of existing.
Today new home have made the most ground - dropping back to 8 months after a historic high of over 14 months. So I would expect new home pricing to level off by next spring push.
On the other hand, existing inventory is still stuck around 9 months for the last 25 months and seems to be having a harder time coming down (probably because of all the distressed activity). This means the existing market will have a harder time finding the "bottom" - which will be important to get consumer confidence back.
Posted by: Nick T. | July 28, 2009 2:19 PM
Take a look at the government data. The Northeast region showed a 29.2% increase plus or minus 112.4%! That killed me.
By the way, I'm wondering if some of our economists friends could lend a hand in explaining that data. The largest increase was clearly in the Midwest. That region, (namely Michigan), was hit hard last summer when it looked like the auto industry was going down. With the auto bailouts and the stimulus package, a lot of investors came into that area for properties that were dirt cheap. Perhaps its skewing things a bit.
Maryland is in the south region which appears to be the most diversified region of the bunch. Texas is doing well, and Maryland is doing ok. South Carolina has high unemployment, and Florida was very active in the real estate bubble. That region was the only one to show a decrease. Sales were 5.3% lower plus or minus 15.5%.
Posted by: jfg | July 28, 2009 2:29 PM
People are a bit too eager to put the recession and housing troubles behind us. A modest supposed uptick during times of trouble is not very reassuring. Jobs are still dropping like flies. This time of year is always filled with an uptick due to summer movers anyway.
I think builders in the Baltimore area could do more to compete with each other and deliver housing for normal people. Thus far only one company seems to have gotten the message.
Posted by: BigDragon | July 28, 2009 10:20 PM