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Do The New Home Sales Numbers Indicate A Turnaround In Housing?

Okay, so March sales of new homes “rocketed” to the highest gain in nearly 50 years, but do the new home sales numbers indicate a turnaround in housing? Hardly. While I understand everyone wants to hear good news, we also need to be realistic and need to know what’s going on in order to make the best business decisions. Here’s the bottom line on the numbers.

According to the Census Bureau, new home sales increased by 7,000 over March 2009, but the increase can be totally attributed to the housing tax credit; and even though sales showed a dramatic improvement over the previous month, February sales were at a record low. The real news is that the overall rate of new home sales remains at very low levels, with March sales 70% below those of the peak five years ago.

While I’m sure that sales for April will also show significant improvement, we must keep in mind that sales are continuing at depressingly low numbers. And since new homes stimulate the economy by creating construction jobs as well as jobs in numerous other industries, housing is unlikely to make a significant contribution to the economy for several more years.

Graph of home sales I’ve inserted a graph from Calculated Risk that shows the ratio of new to existing home sales. As you can see, the general trend has been that new homes average between 15% and 20% of sales of existing homes. Even with the tax credit the current ratio is only about 8%. A true recovery will be indicated when the ratio returns to more normal levels, and that won’t happen until we rid the market of foreclosures, something I don’t expect this year or next.

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Thanks to CalculatedRiskBlog.com for sharing this graph.

Posted by John Mulkey, Housing Guru on 04/24/2010 09:59 AM

Comments (40)

New Home Sales Remain Below Normal in the ActiveRain Channel

new home sales, housing crisis, impact of foreclosures on new home sales

Originally posted at: BluefoxToday blog : Do The New Home Sales Numbers Indicate A Turnaround In Housing?

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40 Comments on Do The New Home Sales Numbers Indicate A Turnaround In Housing?

APR

2010

John: Thanks for being a voice of reason on these latest numbers. Tax credit driven for sure.

APR

2010

Thanks for this blog. The graph really tells a story. I'm sending this on to the owners of our real estate company.

I had heard the news report and all the claps and screams, but also knew that it did not fit with what I saw in the market. February was one of the worst months for sales per the data and factor in the expiration of the tax credit. Now add soaring grocery prices, how much can the average American take. Also the backlog of foreclosures is upon us. Numbers can be/are deceiving.

It is amazing how the media is determined to make all of the government spending look successful !!!

I enjoyed your feelings about the economy. Thnks for sharing.

Matt - Perhaps if the numbers were greater there would be some reason to cheer, but the increase was pitiful.

Sue - Thanks for stopping by.

Dick & Dixie - In this case the numbers tell the story; it's the hype to distort that bothers me.

Michael - It will be interesting to see the incremental cost of each additional sale.

Allen - And thanks for visiting.

Hi John,

I think it depends on your market. Truly. Some parts of our market show marked weakness other parts seem to be coming back to life. Volume is never going to be what it was during the boom. The parts that are doing better are not at the lowest end. Given the high cost of housing my area, I can't imagine that the tax credit is making so much as a dent in those markets. Entry level will probably be down somewhat around here. But the rest - I'm not sure.

Thanks for the post.

Just this morning I had one of my sellers call me and tell me they thought the wanted to RAISE the price of their condo after hearing last nights news! Yeah, right! We've had 2 showings in 5 months!

I can't wait to give them this graph!

Those of us in the trenches know what's going on still, but this is going to (again) make it harder for us. I do agree that it's nice to hear something positive, but you can make "numbers" look anyway you want to.

Ruthmarie - Yes, it always depends upon the market, I'm just pointing out that the current hype by the media doesn't reflect the true conditions.

Barbara - If your seller is serious they'll have to "get real." Two showings in five months should give them the message.

It's odd out there to be sure. You can't really count on anything. Great homes sitting on the market, horrible ones getting multiple offers. Price driven? sort of ....it's just odd. I'm actually looking forward to next week, let's see what normalcy looks like again.

Karen - The housing number will remain skewed through April, then we'll get a feel for the actual market. Few want to admit the reality of this recession; it's creating fundamental changes.

John, I consider myself a realist, so I always appreciate people painting an accurate picture of the housing market. Enough of the hype and doom & gloom; I just want someone to tell me what's really going on out there. Thanks for doing so.

Thanks, John. I wish more people knew you can't trust the media.

Patsy - That's what I try to do, present the facts--just the facts : )

Monica - It would certainly be nice if they'd just give us the full picture.

John, I agree: tax incentives have made all the difference. I'd like to be wrong, but time will tell.

Sheila - And tax incentives are an artificial stimulation. We'll soon see the real condition of the market.

In our market, March was a great month only because the banks created a good month. Many homes that should have closed in late Dec, Jan and Feb successfully did so in March. I wonder if that had anything to do with their quarterly earning report...

Maybe I missed something. Wasn't the tax credit intended to increase sales? Seems like it had the desired effect. There is no doubt that the media is certainly trying to influence and shape public opinion. That's what they do. No argument there. In this case I feel that public opinion needs a boost as far as the housing market goes. Perception becomes ones reality. As long as the public perception is that the market has not reached bottom then the consumer will continue to wait before they buy. More waiting equals fewer home sales. Fewer homes sales equals more inventory. More inventory equals falling prices. The cycle repeats over and over. John we can always count on you to take the glass if half empty view of things. Try to be positive for a change.

I no longer try to predict the market. Too many variables and I do not want to look dumb (er).

This is an eye opener for me..........................chris

Good post, John. I believe that as soon as the housing tax credit ends, real estate sales will plummet. Depending on where you practice, it's going to be a while before the real estate market recovers...years in some cases.

Hi, John. Data can be skewed to make whatever case you want to make. I hate gloom and doom but I just don't trust "good news" because I feel that it has been "created" when what I see actually happening doesn't support it.

I think you are very realistic because the glass IS half empty!!!

Any chance you sending this to our major news networks so they can look at some reality. Sometimes what I see form them is, well, outright deceit. Thanks for the post.

Joe - After the credit we'll get a better picture of the "real" market.

Liucien - I use neither a glass nor a news report to determine the status of the market; I analyze the facts. Savvy consumers do the same. Artificially stimulating the market has no long term effect; it only looks good to those who ignore the truth.

Gene - I agree.

Christopher - I hope it was helpful.

Al - I doubt the tax credit will cxreate any lasting benefit.

Leslie - Thanks. I can always depend on you to defend me : )

John,

The graph is pretty interesting. The many real estate and mortgage market imbalances will take a while to correct, so recovery has to wait for another while. Or two.

I disagree with your assessment and logic. Yes, some of the sale are attributed to the tax credit. Actually, many may be attributed to it; however, your statement that the increase is "totally" due to the tax credit is nothing more than opinion lacking any factual data to support it. Giving a prediction of the housing market in the US is equated to saying it is 85 degrees outside in the US. More concern should be given to state and local housing markets and those same local economic trends.

APR

2010

I don't disagree or agree with your assessment as I don't know your market, "real estate is local" after all. To some degree the tax credit did as promised and got some buyers off the fence but on the other hand the "good news" is giving some sellers a false impression that the market has stabilized or gotten better and doubt the agent's BPOs. Some agents I've talked to have said high end existing home sales have increased but the low end are still at the mercy of banks' tightened credit requirements while reporting qtrly profit increases. IMHO we will have to see if the market has indeed stabilized after the smoke clears from the tax credit but I feel that stable job growth is key to any sustained housing growth or stabilization.

Esko - The graph tells the story much better than the media.

Aaron - Of course the article is based upon MY opinion; it's the only one I have to offer. However, most "experts" agree that the market is being artificially stimulated by the tax credit. The state of the market after the credit expires will allow us to see the true conditions.

George - Without job growth, we have no recovery. In reality there is no such thing as a "jobless recovery."

John, Thank you for your insight into the meaning of the New Housing Sales numbers. Numbers can be deceiving depending on, as we have all experienced at one time or another, the mind set of the person analyzing and presenting them.

A true recovery will be indicated when we are back to 4 or 5% unemployment... which is structural.

I agree with Jay - nothing else really matters until folks have jobs again.

Carol - I like to have my numbers plain without the fluff or commentary.

Jay - We'd all like to see jobs return; but when will that happen?

Joetta - When we have jobs we'll have a real and meaningful recovery.

The graph is a true indiciation of what's to come. I know our market is beginning to build new homes a little at a time.

Kay - The problem for builders--I once shared that occupation--is that they can't compete with foreclosures, many of which are being sold below the cost to build. Until the market returns to a more normal ratio, builders will continue to suffer.

APR

2010

Interesting. I too am leary of that report. The other day I was treated to a front page headline in our local paper that read, "West Michigan home building surges." Single-family home starts in Kent County are up 159 percent from the first quarter of 2009.

Wow. 159%

Here's another comment from the story: "I just think there is something sustainable, in a sense, going on here. There is some evidence that the economy is perking up a little bit."

Really? I just paid nearly $3.00 a gallon for gas the other day. Bell peppers are selling for $1.99 apiece. I looked at some NY strip steaks. Asking price: $14.99 a pound. That's choice not prime. Last summer I seem to recall paying about half that amount. A 50% increase? My dog's food is up 30% over just 2 years ago. And they say health care costs are rising at an unsustainable rate. The way the food prices are climbing, the whole family may be enjoying a delicious bowl of Purina One for Sunday afternoon dinner soon. The dogs seem to have taken a liking to eating grass. At this rate I'm hoping to use them to graze the lawn this summer since I may not be able to afford gas for the mower. Since we'll be eating their food everything might even out. Doctor says we need to get more fish in our diet. That ain't going to happen at $12.99-$14.99 for a pound of Walleye. What about salad then? Tomato's are at about $1.70 apiece. If I had my life to live over again I'd probably choose to become a spice farmer. Average price: about $3.50 an ounce!

My wife works for the state unemployment agency. Phones are ringing off the hook and she's on mandatory overtime for the 3rd or 4th year in a row. She now makes more money than I do. (Thank God)

The good news is: I can buy a new computer for about $599.00 that can run circles around my old one that I paid about $2,000.00 for a couple of years ago. Too bad I can't eat it.

Recovery?

Not yet methinks.

Carl S

Carl - Some pretty good reasons not to count on a recovery just yet!

Not any time soon, my friend.

APR

2010

good points thanks for the info. Funny how you can prove anything with statistics

Jay - No, not yet.

Bill - But if you dig a bit deeper, you'll often discover the truth!

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John Mulkey, Housing Guru

Waleska, GA

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