The divergence between the depression level weakness in “post-surge” July and August New Home Sales volume vs. continuing sentiment, consensus opinion, Existing Sales volume, and especially last year’s consensus estimates of 500k to 600k New Home Sales for full-year 2013 is absolutely shocking. This is more evidence we have come full-circle and now believe that 2007 to 2010 was the anomaly in the sector and housing can’t go down. At least the builder stock prices are seeing through the macro euphoric sentiment fog.
Instead of emotion and anecdotes, look at the data; the data are the data, plain and simple.
New Home Sales remain very weak “post-surge” — the builder stock prices have had it right all along
Last week’s “dead-flat” MoM Aug New Home Sales volume; “post-surge” internals that look terrible on an absolute and relative basis; and builder sales prices the obvious pink elephant outlier in the room led to one of the largest, most natural, and lazy display of misreporting (almost as if nothing else could be true so let’s just rewrite a headline & story from 6 mos ago) that I have seen since 2007 when everybody really believed that “if it’s not Subprime then it must be Prime”. I absolutely love periods when deep-seeded consensus opinion and group-think in housing and mortgage rule the roost and then conditions suddenly change.
Bottom line: August New Home Sales were statistically “dead-flat” MoM; down 27% from the June headline print; down 27% ” on the “surge”. The MoM “increase” being reported was exclusively due to rounding and SAAR; the law of “small” numbers playing out from which a gain or loss of 3% can be achieved by adding or subtracting 1 house at the 500 unit mark (becomes zero or 1000 times 12).
On a real, NSA (not seasonally adjusted) basis, if not for the low-end and volatile South, August sales would have been flat on a YoY basis as well; something that hasn’t happened in Aug since 2010. Downward revisions on contract cancellations over the past two months have been historic essentially making 144k annual “sales” that had been reported previously, vanish into thin air. Yet, the Aug New Home Sales report was being heralded as a “strong month”; a “huge bounce back”; “proof the rates surge didn’t slow down the market”. etc.
New house prices are the outlier in yesterday’s report…builders simply raised them too far and fast, especially in the context of a 15% loss of “purchasing power” caused by the “surge”. It’s amazing really…builders have priced houses 15% higher YoY and on the surge, buyers using a mortgage loan just lost 15% in purchasing power. The odds of homebuilder’s having to drop prices — as YoY comps go negative — by large amounts are overwhelming.
The Weak August Builder Sales Data / Builder Price Reductions front and center
a) In August, 35k houses sold. In July, 34k houses sold (revised lower by 1k). But if you add up all the regional sales shown below BOTH July & August add up to 35k. This is housing recession-level demand.
Thus, the “MoM” increase” was exclusively due to rounding, SAAR, and the “law of small numbers”. In fact, this “increase” being heralded could be a result of just one house sale over last month (i.e, 34,499 would become 34k for July and 34,500 would become 35k for August).
b) The SAAR rate of 421k could have easily been 409k if one house sale contract was not included and Augusts’ number was rounded down. In fact, based on the downward revision trend for the past 2 months, August will most likely be lowered more than that. Moreover, forecasts for 2013 had new home sales at 500k to 600k…we will be lucky to do 415k.
c) August vs July sales flat and down 27% from the headline June number of 48k (later revised down a record 10.4%)
d) The August 2013 YoY sales increase of a paltry 4k units — a whopping 13% due to working with such low numbers — was exclusively in the South. In fact, if the Southern region gains were backed out, the other regions were flat YoY, something not seen in August since 2010.
e) Total record downward revisions over the past 2 months since the rate “surge” total 144k SAAR…144k house sales per year “vanished” into thin air.
Going into the winter months…sales and prices in jeopardy
Now we go into winter months when demand generally slows. But last year sales held up reasonable well on the historic low rates. This sets Q4 and beyond up for headline YoY comps.
Worse yet, houses are “priced” 15% higher than last year and are another 15% more expensive to own on a monthly payment basis to the 80% of builder clients who use a mortgage to buy.
Item 1) July vs Aug 2013 sales dead-flat when looking at the component regions meaning the “large increase” (of 1000 rounded units, the smallest increase this report can pick up) could be exclusively due to rounding and SAAR. Moreover, ALL the YoY gains are from the low-end, volatile Southern region.
Item 2) In the context of “post-crash”, from 2008 and 2009, August sales are still trending lower (38k in 2008, 36k in 2009, and 35k in 2013). Sure, we got a bounce in recent years off trillions in money printing, artificially low rates, and govt/bank foreclosure abatement. But if the sales “increases” below is all you get from all of that, I am not sure how much MORE has to be spent to get sales back up to levels forecasted for 2013 and 2014.
Item 3) In the context of the past 7 years — and “post-crash” — builder sales remain at recessionary levels.
Item 4) Builder demand is almost a rounding error to macro housing. Resi housing used to be a powerful macro economic force. Now it means very little. In fact, Existing sales, “distressed”, rehabs and flips ADD FAR MORE to GDP than builder sales at these depressed levels.