New Home Sales November 2010 Review

New Home Market Pathetic

New Homes Sales were reported this morning for November 2010, and according to some, they may have represented a "pivotal turn in the housing market." According to us, that's foolish bull! Housing remains pathetic, especially within the New Home market.

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New Home Sales November 2010 Review

The US Census Bureau and the Department of Housing and Urban Development (HUD) reported on New Home Sales for the month of November 2010 this morning. I could not help but chuckle after reading a report on a respected news provider's website, which expressed joy at the 5.5% growth for the annual pace of sales in November. Many of these websites hire unseasoned writers and editors lacking financial markets experience, and life experience for that matter. I've seen this personally, with a twenty-something editor once completely altering an analysis of mine (recall I was a Senior Analyst); when I complained, the publisher sided with the novice editor, who was an internal employee, versus my freelance status. This is what you are buying into in many surprising instances… And this is a big reason why I've decided to tell truth in this independent fashion. I must warn you that publishers are not paying enough to attract high-level content producers, and I cannot comprehend why anyone would choose to be a business writer today in such an environment. There are more appealing career routes, like perhaps in waste disposal. Seriously, writers make less.

That awesome 5.5% growth in New Home Sales, took the pace of sales to 290K, which is pathetic. However, that fact was unfortunately overlooked by the novice reporter at the aforementioned publisher. Sales overcame a revised October pace of 275K, reduced from 283K. Thus, the growth got a boost from the reduction of the comparable period number. Otherwise, it would have marked a rate of 2.5%, which perhaps the gleeful grunt might not have found so great. Regionally speaking, sales improved in the south and west, while the sales pace declined in the more mature markets of the Northeast and Midwest.

Neither did it faze our fabulous friend that November's sales pace fell short of the consensus estimate taken by Bloomberg's survey of economists, which targeted a level of 300K new home sales. The wrong writer also missed the important fact that sales were down 21.2% from this time last year. In other words, this is a bad report, as I might put it to my peer before I relocated him to sweeping up duties (his story in particular) - if I were his editor. It just bothers me that this kind of work is being taken seriously because of the name atop the website, while our catchy but perhaps comical brand might turn a head or two away before even reading a sentence. It's up to you to get the word out…

The state of the new home market is pathetic, plain and simple, and capital is impossible to find for the smaller builders. Now, well-established and seasoned home builders like Toll Brothers (NYSE: TOL) use markets like these to go out and buy land on the cheap from troubled smaller developers. That said, TOL is down about 2% at this intraday trading hour, after a week of run-up on a reported profit. The Homebuilders SPDR (NYSE: XHB) is down about a half a point as well, given the wakeup call delivered this week, following a just finalized feeding frenzy.

New home supply moved to 8.2 months, improved from the revised 8.8 months inventory in October. Putting things into proper perspective, supply was at 7.7 months last November. It's important that you realize that housing supply is measured by the rate of sales, and so it is not a simple reading of the number of homes out there built and available for sale. Months matter to property owners, because they pay monthly interest on loans taken out for the purchase of land.

The median and average sales prices of a new home improved in November. Median prices gained to $213K, up from $197,200 in October, but fell from $218,800 at this time last year. Average prices also gained over October, up to $268,700, from $248,700. Average prices were down though from $274,700 last November. We suspect prices improved over October more so due to the attrition of developed properties out there in the wind for sale, and a lack of new development, versus due to a generally improving real estate environment. That said, if properties move at higher pricing, we have an improving environment for builders. Still, prices had dropped significantly from September, and remain below those levels in November. And they're still well below spring levels, which were synthetically lifted by the government's housing tax incentive. I should note that I expect prices to decline further, and this week Morgan Stanley (NYSE: MS) expressed its concurrence, forecasting real estate will shed another 11% or so through 2012.

We see little robustness in the levels of activity in the categories of development, with homes not started and under construction not showing any signs of life. Eventually, this new home segment of the real estate market will benefit from consolidation and today's underdevelopment resulting from the foreclosure flooded real estate market. This is because of stubborn population growth, a trend of general long-term personal economic improvement, and a labor market that had better improve. However, eventually is not today.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

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