Here’s a stat that seems almost too unbelievable to be true. According to economist David Rosenberg, high priced new homes are not exactly flying off the market. If this weren’t from someone as credible as Dave, I’d think this had to be a misprint of sorts – from his daily letter:
Now back to the new home sales data. Every region in the U.S. was down, and down sharply. The homebuilders did not cut their inventory levels and as a result, the backlog of new homes surged to 9.1 months’ supply from 8.0 months in June, which means more discounting and margin squeeze is coming in the homebuilder space. As it stands, median new home prices were sliced 6% in July and this followed on the heels of a 4.7% drop in June. And, at $235,300, average new home prices are down to levels last seen in March 2003, down nearly 30% from the 2007 peak. If the truth be told, if we are talking about reversing all the bubble appreciation that began a decade ago, then we are
talking about another 15% downside from here. The excess inventory data alone tell us that this has a realistic chance of occurring.
The high-end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes prices above $750k managed to sell in July.Answer — zero, nada, rien; and for the second month in a row. Only 1,000 units priced above 500,000 moved last month. That’s it! Over 80% of the homes that the builders managed to sell were priced for under $300,000. Just another sign of how this remains a full-fledged buyers’ market — at least for the ones that can either afford to put down a downpayment or are creditworthy enough to secure a mortgage loan (keeping in mind that 25% of the household sector does have a sub-600 FICO score).
Unbelievable. And diving back into the new home sales report, it was ugly across the board. From the LA Times:
Sales of new homes unexpectedly sank 12.4% in July to the lowest point since government records starting being kept in 1963. It underscored continued weakness in the housing market, which tanked after the expiration this spring of a tax break for home buyers who were already facing a stagnant job market.
The Commerce Department said Wednesday that new single-family houses in July were sold at a seasonally adjusted annual rate of 276,000 units. It marked a 32.4% drop from the same month a year ago.
How is news like this still “unexpected”? We only saw a dead-cat bounce in housing thanks to Obama’s $8,000 tax credit. Since it expired on April 30th, the housing market has been utterly devoid of life.
As hard as they try in Washington, they can’t keep this Humpty Dumpty housing market propped up. It’s coming down to sea level, and probably lower, since bubbles usually retrace all of their previous gains and then some.
As if the housing market wasn’t facing enough headwinds – it also has some serious demographic challenges in the years ahead.