November 25, 2009
Think Twice About Cheering New Home Sales
Many Wall Street and industry experts are cheering October’s new-home sales, which handily beat estimates by climbing 6.2%. Prices, which had been in freefall, dropped by the smallest margin in nearly a year.
And remember all that excess inventory that forced home builders to throw in everything from a gourmet kitchen to a sports car? Gone. “New home inventory is now plumbing depths we haven’t seen in 38 years,†writes Weiss Research analyst Mike Larson. “If you’re looking for a sign that builders will need to start swinging their hammers again soon, this is it.â€
This is good news as the battered new-home sector limps toward recovery. But we urge caution before flooding the local building-permit department with applications.
First, consider the comps. Builders have been in a downward spiral for some time, so even a modest uptick looks stellar. The number of new homes that sold in October is a seasonally-adjusted 430,000, up from 405,000 a month earlier. Do the math: It’s a small increase, and one well-below the once high-flying market’s roughly 1.4 million sales reported in July of 2005.
To read the full article, click here …
