New Home Sales: Decline Sharply

Bottom Line: New home sales fell sharply more than expected in January, the lowest level since October. Sales over the last three months have averaged 514K and are 3.2% above the 6 month average of 498K. The months supply rose moderately as sales fell and inventories rose. New home prices were mixed relative to their year ago levels. While existing home sales yesterday showed a slight increase, this new home sales data (based on contract signings rather than closings like existing home sales reports) reveals potential weakness going forward. New Home Sales FELL by 9.2% to 494k. This compared with market expectations for a decline to 520k, from the December level of 544k. Sales are now 5.2% BELOW their year ago level and still a stunning 64.4% BELOW their July 2005 peak. The Inventory of Homes Available for Sale ROSE by 2.1% to 238k. Inventories are now 14.4% ABOVE their year ago level but still 58.4% BELOW their July 2006 peak level. Combined with the decline in sales, the Months' Supply increased to 5.8 months from 5.1 months. This is slightly BELOW a "normal" level of 6.0 months and well BELOW its peak of 12.2 in January 2009. Home Prices were MIXED with median prices 4.5% BELOW their year ago level and with average prices 2.7% ABOVE their year ago level. Both median and average home prices had been trending higher over the past year.