| New Home Sales Hit New Lows, But Inventories Continue to Fall |
| Written by Jonathan Smoke | |
| 01.29.2009 | |
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Discuss this article on the forums. (0 posts) Except for the lagging home price indices that will be released for December next month, we got the final metric today that closed the book on what was a rotten end to a rotten year. The Commerce Department reported that new home sales in December 2008 were at a seasonally adjusted annual rate of 331,000 units, a new record low. The December pace of sales was 14.7% below the downwardly revised November rate of 388,000 units. Also according to the Commerce Department’s survey-based numbers, 482,000 new homes were sold in 2008, down 37.8% from the 2007 figure of 776,000. Again these dismal numbers are of no surprise to anyone seriously involved in this industry. It was almost as if the fourth quarter of 2008 never happened. A financial-meltdown-induced crisis of confidence will do that to a market, as will expectations for a massive change in leadership and policies. In either case, waiting and hoping for a better tomorrow became the rule of the day—not buying or building. As depressing as the year end stats were, I did find hope in the inventory numbers in the December report. While the months’ supply figure rose to 12.9 (seasonally adjusted) as a result of the corpse-like pace of sales, inventory levels actually fell substantially to 357,000 units (seasonally adjusted)—a whopping 10% decrease from November. How significant was that? Looking back over the history of the government inventory number to 1963, it had never fallen more than 5.8% before. The average change in inventory levels month to month is 0.1%. So 10% is an amazing decline. Without seasonal adjustments, the inventory decline was still significant—over 9%. And as the chart below illustrates, actual inventory levels have fallen now for every month for more than a year. Using an average pace for new home sales, this inventory level is now down to 6 months' supply. We have a long way to go to get back to a normal pace for new home sales, but this does help show that the huge declines in production are helping to make this hole shallower than it would have been with the inventory glut that existed a year ago. 
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