UPDATE: New-Home Sales Decline Is More Bad News For Builders
25 June 2009 - 3:06AM
Dow Jones News
Battered home builders in the U.S. got even more bad news
Wednesday: new-home sales fell unexpectedly in May, showing the
sector must continue searching for stability as it limps through
the worst downturn in generations.
Single-family sales decreased 0.6% from the prior month to a
seasonally adjusted annual rate of 342,000, the Commerce Department
reported. That's below the 360,000 economists had expected.
Year-over-year, new-home sales were 32.8% lower than the level
in May 2008.
"The numbers are not great; there's no question about it," said
Leif Thomsen, chief executive of independent mortgage lender
Mortgage Master.
Still, the results didn't drag down builder shares, which opened
with gains aided, in part, by a Mortgage Bankers Association report
that mortgage applications filed last week rose 6.6% sequentially
on a seasonally adjusted basis, and climbed 17% from the same week
a year ago. All the major builders recently showed gains, with
Lennar's (LEN) 7.75% gain leading the pack. The Dow Jones US Home
Construction Index recently climbed 2.34%.
That's a modicum of good news for an industry that's been
struggling for some time. Mounting foreclosures, which can sell for
steep discounts, continue to catch buyers' eyes, trumping such
builder incentives as paid closing costs and lower mortgage rates
for a loan's life. And an $8,000 federal tax credit for first-time
qualified buyers until Dec. 1 hasn't driven the deals the industry
had hoped it would. Interest rates are ticking upward, sending
fresh chills across the industry.
Plus, there's newly enacted appraisal guidelines that some
consider stringent, which could "mean that many orders signed in
recent months may not result in closings," noted Credit Suisse
analyst Dan Oppenheim, who expects further declines in new homes
sales in the coming months.
Such issues are why, after climbing for two consecutive months,
the monthly National Association of Home Builders/Wells Fargo
Housing Market Index dipped 1 point to 15 out of 100 in June.
Sales weren't the only potential disappointment in Wednesday's
data. The median price for a new home fell 3.4% in May to $221,600
from $229,300 in May 2008, but was above April 2009's $212,600.
Builders have shaved prices - sometimes into the six-digit range -
to move inventory. They're now building smaller and cheaper
homes.
Oppenheim pointed out the data tends to be biased by mix and
prone to revision. "Our market checks continue to indicate much
more severe declines," on a year-over-year basis, he said.
At May's end, there were an estimated 292,000 homes for sale,
down from the 299,000 for sale at the end of April. But the ratio
of houses for sale to houses sold in May remained high, at 10.2. It
was 10.4 in April. That's "twice what a normal solid market is,"
Thomsen said.
And JP Morgan analyst Michael Rehaut expects inventory to remain
highly elevated over the next 12 months, which should drive further
home price declines and large impairments well into this year.
"We continue to believe demand remains relatively weak, and that
a trough in the housing market remains elusive," he said.
-Dawn Wotapka; Dow Jones Newswires; 212-416-2193;
dawn.wotapka@dowjones.com
(Jeff Bater and Shara Tibken contributed to this story.)