Realty Check

New Homes on a Total Tear


Not a lot of numbers shock me, but this one almost took the life out of my "live shot" when I saw the breathtaking number flash on my screen at 10 a.m. New home sales up a whopping 16%!! Now usually I give that caveat that the margin of error on the Commerce Department report is five times the actual number, but not this time. This one actually beat the margin of error (+/-13.0%) by three percent!

So what's up with this? Two things: prices and inventory. We've been saying it all along, until prices come down, sales will go nowhere and the builders are finally beginning to get that. The median price of a new home came down 11.1% to $229,100 from $257,600 in March, and this number doesn't even factor in all those incentives on fixtures and financing. Will that hit the builders' bottom line? Sure, but not selling the house hits it even worse.

Inventories also came down from an 8.1-month supply to a 6.5-month supply. That means there is less to choose from and buyers may be figuring that out. It's also good news for the builders, since it means that they're carrying less now. Many of the mid-sized private builders I've spoken with say they have cut their "spec" home building dramatically, and clearly, this number reflects that.

So does this mean it's all turned around?? I don't think we're ready to call a bottom yet. Here's why: subprimes and ARMS. I know, I know, we've been there, done that story, but the fact is that the bulk of the adjustable rate mortgages that are going to reset at higher rates, the ones that were pushed by all those aggressive brokers, they haven't actually reset yet. In other words, the worst is yet to come.

Now before all you naysayers start yelling at me, telling me that the media is fueling all the bad news, and it's all our fault, I'll just say this: I've got the numbers, and by that I mean I know how many of those "exotic" mortgages were sold in the last few years with three-year reset dates. Let's just say there's a whole bunch. And it isn't just the subprimes either. Many Alt-A and prime ARMS will reset, and depending on local economic factors, many people will either go into default or more likely put their homes on the market, adding to inventories.

Is traffic increasing in new and existing homes? Yes. Are builders confident? No. 

Is today's number good news: Yes!! Is the housing slump over? Not by a long shot.

Questions?  Comments?