New Home Sales: Housing Weakness Accelerates to Downside

Bottom Line: Housing weakness is accelerating to the downside. Continuing a string of weaker housing data, new home sales in September were sharply slower than expected. Weather was only a small factor in declines. Affordability appears to be the major problem for new home sales with higher mortgage rates and home prices still elevated. Inventory levels have risen modestly in the last few months as sales have slumped, driving months supply up sharply. With weaker existing home sales last week this new home sales data (based on contract signings rather than closings like existing home sales reports) reveals a potentially even greater slowdown in housing. New Home Sales FELL by 5.5% to 553k, after the prior month was revised lower to 585k. This compared with market expectations for a decline to 625k, from the unrevised August level of 629k. Sales are now 13.2% BELOW their year ago level -- and they are still 60.2% BELOW their July 2005 peak. The Inventory of Homes Available for Sale ROSE by 2.8% to 327k. Inventories are now 16.8% ABOVE their year ago level but still 42.8% BELOW their July 2006 peak level. Combined with the decline in sales, the Months' Supply increased to 7.1 months from 6.5 months. This is modestly ABOVE a normal level of 6.0 months and well BELOW its peak of 12.2 in January 2009. Home Prices FELL with median prices 3.5% BELOW their year ago level and with average prices 0.6% BELOW their year ago level.