| November Home Sales Down But Inventory Data Provide Something to Cheer About |
| Written by Jonathan Smoke | |
| 12.23.2008 | |
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Discuss this article on the forums. (0 posts) We were treated to a holiday special of both new and existing home sales data for November released today. If your fruit cake and eggnog are of similar quality, please check the freshness date so you won’t ruin the rest of the holiday season. The National Association of Realtors released preliminary existing home sales for November and noted that “[e]xisting-home sales weakened against a backdrop of an eroding economy.” Total existing home sales declined 8.6% to a seasonally adjusted annual rate of 4.49 million units in November from a downwardly revised level of 4.91 million in October. The November sales rate was 10.6% below the 5.02 million-unit rate in November 2007. The monthly decline of 8.6% for total home sales was the worst monthly decline since they have been reporting total sales inclusive of condominiums, which started in 1999. Existing single family sales declined 8% from 4.37 million in October to 4.02 million in November. We had a worse single family decline as recently as March 2007 as the subprime fiasco was just beginning. The record for the worst monthly decline was set in April 1980, when single family home sales fell 14.5%. Depending on the volume of foreclosure sales in December, we may just challenge that record when we get the December report from NAR on January 26. The Commerce Department also reported preliminary data on November new home sales today, and the declines there weren’t as steep because new home sales have been bad and trending worse since July. The Commerce Department reported that sales of new single family homes were at a seasonally adjusted annual rate of 407,000 units in November. That rate was 2.9% below the revised October rate of 419,000 units and was 35.3% below the November 2007 rate of 629,000 units. The monthly decline wasn’t steep enough to be statistically significant. The encouraging signal in this report was that new home inventories continued to decline. I prefer to look at non-seasonally adjusted inventory numbers so I can see if the hole is getting bigger or smaller. It indeed is getting smaller as the below chart shows. The inventory data seemed a little paradoxical to the declining sales, but remember that permits and starts have fallen off a cliff. The report press release noted that the seasonally adjusted estimate of new houses for sale at the end of November was 374,000 units, which was a 7% decline over the October inventory of 402,000 units. That decline in inventory was the biggest monthly decline since the series began in 1963. Prior to this new data, the previous record monthly decline was 5.8%, which occurred in November 1963. What is getting press attention is that inventories remain elevated when measured as “months’ supply,” which of course takes into account the current pace of sales. The 374,000 units represent a supply of 11.5 months at the current sales rate—almost a year’s worth of new homes. The 45 year average pace of new home sales is 58,000 units or 70% more than the current pace. If you substitute the long term average pace for the current depressed pace, the inventory of 374,000 units translates to 6.4 months’ supply, which is darn close to the 45 year average of months’ supply. The December data will likely show further deterioration in sales and possibly slightly higher inventories, but since inventories have actually declined throughout the year, the stage will be set for 2009 to see improvements once one or more factors (mortgages rates, tax incentives, price discounts etc) finally act as the catalyst to bring buyers back into the market. So go back to your holiday cheer, but check the freshness of the eggnog just to be safe. Happy holidays from HousingIntelligence! 
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