New Home Sales Plummet

Investment Research Dynamics

The Census Bureau released its new home sales report for June today (July 24). Even with substantial downward revisions to previous reports, the sales numbers for June plunged over 8% from May and over 11% from June 2013. That this drop in June occurred in what should be the highest month of the year for all home sales is highly indicative of a market that is deteriorating at an accelerating pace. The big drop occurred despite a drop in the median price of homes sold, which theoretically should have stimulated sales. Taking all of these factors into consideration, I believe that this report further reinforces my view that the housing market is fundamentally damaged, homebuilder stocks are significantly overvalued and the next leg of the housing market depression that started in 2005 is unfolding.

The new home sales for June (data from the link above) was reported to be 406k on a seasonally adjusted annualized rate (SAAR). Please see my last article on existing home sales for the problems with using SAAR for a monthly-based report. This 406k was not only a steep decline from May and June 2013, it was 14.5% below the Wall Street consensus estimates. It was 11.5% below the lowest analyst estimate per Bloomberg. Not only this, but the numbers reported for the last three months were revised lower: March 410k to 408k, April 425k to 408k, May 504k to 442k. In other words, June’s new home sales were nearly 20% below the number assumed for May by the market prior to today.

The degree of this “miss” of the estimates in conjunction with the downward revision of the past three months indicates that Wall Street and investors have expectations about the market that are far too optimistic. This optimism is especially unfounded given that, on a seasonal basis, June is the strongest month of the year for home sales. In my view, that June’s sales were significantly below the monthly sales of every month going back to October 2013 except March underscores the inherent weakness of the housing market.

Read the rest of this story here:  Seeking Alpha