From the Wall Street Journal (my comments in blue ital):
New home sales plunged 17.3 percent in 2006, the biggest drop in 16 years, although warm weather in the Northeast gave a better than expected lift to December sales. In other words, the sales would have been even worse if it wasn't for global warming - I hope the RE industry is happy with our burning of fossil fuels.
The full-year median price of $245,300 was up 1.8 percent from the full-year 2005 average, but that price does not reflect the various sales incentives such as extra features or closing costs that the majority of builders are reported offering to support weak sales. The median price is actually lower, but the industry won't allow for the true numbers to come out or they may face mass hysteria from the over spent public.
John Tomlinson, an analyst with Majestic Research who follows the stocks of major
home builders, says the weather-impacted December readings are not enough to say that the new home market has found a bottom.
"This is such a seasonally slow time of the year, I think we'll have to see how sales pickup in the March or April," said Tomlinson. "They still have to clear the high level of inventories before they'll rebound." That may be tough with the number of foreclosures hitting the market - California is adding 300 REOs per day.
Major homebuilders such as Lennar, Pulte Home, KB Home, Centex, D.R. Horton and Toll Brothers all saw sharp declines in earnings in 2006 with the slump in home building and new home prices.
Alan Gayle, senior investment strategist, Trusco Capital Management, the asset management arm of SunTrust Banks, also agrees it may be a year or two before the home building and new home sales market show some significant strength.
"We think the market is trying to find a bottom, but what we're seeing is still some very significant discounting going on," said Gayle. "I think we're going to see some
further softness in the first half of the year. By the second half we will have gone through the worst of this slowdown. But a resumption of trend growth in housing could be another year or two off."
But David Seiders, the chief economist for the National Association of Home Builders, said the demand for new homes is showing relatively decent strength, falling only to near 2003 levels, which was a record at that time. Well, let's see...it had dropped to 2005 levels and then 2004 levels and now...2003 levels...uh, why won't it drop further?
"We knew all along that 2004 and 2005 were unsustainable binges," he said. "If we can move ahead from the average we saw in '06, we'll be happy as clams." It may be better to be oysters rather than clams, but I doubt there are any pearls in the year ahead.
But he said if new home prices are going to show strength again, builders will need to keep housing starts and construction slow a while longer to burn off the inventory left over from the building boom.
"The builders do need to move that off and they know it," he said about the supply of completed homes available for sale on the market. You know what that means...more discounts, incentives and decreases in the median sales prices. Hoorah!
No comments:
Post a Comment