Tuesday, November 30, 2010

October new home sales fall in the West, US

New single-family home sales fell again in the US and in the “West” region which includes Colorado, according to a new report released by the Census Bureau.

The report, which monitors sales activity for newly constructed houses, reported that in the West, new home sales fell 50 percent, year over year, falling from 8,000 in October 2009 to 4,000 in October 2010, while nationwide, sales dropped off 30 percent falling from 33,000 to 23,000 during the same period.

In October, new home sales, tied for the lowest volume in at least a decade. The first chart shows monthly new home sales totals for each month since 2003. October’s total of 4,000 new homes sold tied with July 2010, and is the lowest total since at least the year 2000.

The chart shows that May, June, July, August and September of this year all set new lows in the total number of new homes sold for each month.

The drop off in home sales is likely tied to the end of the new home buyer tax credit which expired in April. The second chart shows that in both the West and in the US, new home sales were pushed up by the tax credit, and then fell quickly after April 2010.

New home sales and new home inventory continue to fall and have generally followed a downward trend since the middle of the decade.

New home sales peaked during the spring and summer of 2005 and have trended downward since. The number of new houses sold in the United States is down 81.8 percent since the peak of March 2005, and new home sales in the West have fallen 89.4 percent since sales peaked in the region during March 2004.

The third chart shows the declines in both US and regional new home sales.

The number of new home sales has also fallen off considerably. The number of new houses for sale in the West has fallen 66.4 percent since the total peaked during June 2007, and the same total has fallen 64.9 percent in the US since the number of new homes for sale peaked in the US during August 2006.

The number of homes for sale grew more quickly in the West than in the US, with growth in the West topping 119.6 percent from January 2001 to June 2007, and the total grew 92.2 percent from January 2001 to August 2006. The fourth chart shows the rise of new homes for sale.

The fifth chart shows the difference between the number of homes in the region for sale at the beginning of a month vs. the number of homes sold during that month. Interestingly, the build up in inventory can be seen as it grows from 2004 to 2007. Historically, it appears that the a “normal” difference between new homes for sale and new homes sold is somewhere between 40,000 and 50,000 homes in the region. This total reaches almost 120,000 homes during the peak months, and has now fallen to approximately 40,000 homes, where the total has remained for the past year. The build-up in inventory clearly shows a situation in which the construction of new homes was exceeding the purchase of new homes. The difference between new homes for sale and new homes sold has declined considerably in recent year, although this is due primarily to a large decline in new construction, and not to significant increases in demand for new homes.

The Census Bureau only provides new home data at a regional level. Extrapolating to the Colorado is problematic with this data since the West region includes California, Arizona and Nevada, all of which experienced large housing bubbles. Nevertheless, regional banks, builders and housing providers will gain insights into how Colorado fits into the larger Western region.