Home builders trade up (!) today. What's up? Two things:
1) builders are DOWN 30 to 40 percent in the last two months, and
2) with these kinds of sales, builders will build even less, and inventory will come down even more.
Still, the numbers were a shock. The May new home sales number, at 300,000, is an all-time low (they started collecting new home sales in 1963). The number was 30 percent below analyst consensus of 430,000. April new home sales, which included the benefits of the tax credit, was also revised downward by 58,000; March was also revised downward.
The inventory of new homes for sale went to 8.5 months from 5.8 in April, the highest since June '09.
Is this a bottom? The problem here is that mortgage application volumes for May have been poor, suggesting more weak numbers for June, even though mortgage rates are well below 5 percent.
Despite the poor showing, many analysts remain moderately optimistic about future sales:
1) Barclays: "We expect new home sales to bottom over the next couple of months and to return to a gradual upward trend thereafter."
2) Deutsche Bank: "While these numbers were terrible, we remain more sanguine on the economic outlook than the consensus."
3) Morgan Stanley: "...underlying fundamentals should support improvement in home sales in the second half."
The main argument of the bulls is that it will take very little increase in sales to create new production. Right now, there are only 213,000 new homes for sale (a 40-year low!), and about 3.9 million existing homes for sale.
That's true: we are set up for a bounce. But will we get the income and job growth to do it?