| New Home Sales Report Repeats the Same Message |
| Written by Jonathan Smoke | |
| 09.28.2007 | |
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Discuss this article on the forums. (0 posts) Yesterday the Commerce Department reported that sale of new homes fell to an annualized rate of 795,000, which was an 8.3 percent decline from July, while inventory levels rose to 8.2 months’ supply, which was the highest level since March. Some analysts fretted that dropping beneath the 800,000 mark was a serious watermark, but my conclusion is a repeat of the message we saw with existing home sales at the beginning of the week: Sales are likely moving into a more realistic “normal” pattern, but inventories are the main concern. )) Click on image for larger view Looking back to 1988, before the last housing downturn we can see that even beneath an annualized rate of 800,000 homes, new home sales remain at a historically good level if we just erase from our memory the period of 2002-2006. Just get over it. Think of all the times for the next several decades that you can tell young pups about the good ole days when sales were twice as high and people camped out over night to get a chance to put a deposit down on a new lot.
Unlike existing homes, there is a little comfort in the level of new home inventory, as we’ve seen these levels before—in fact they were higher at the peak of the last down turn. However, new homes have a double whammy when it comes to the inventory issue. Inventories of existing homes are at unchartered levels, and existing homes are a near substitute for new homes. So even if new home inventories decline and get back to a more comfortable 5 - 6 months supply range, sales will likely still be dampened by the existing home inventories. 
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