New Home Sales: Slightly Better Than Horrible

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Building Up to a Housing Rebound? (John Gress/Reuters)

It is interesting what registers as good news these days in the housing market.

People are making a big deal out of today’s new homes sales number as perhaps finally the sign that the housing sector is rebounding. On Monday, the Census reported that new housing sales rose 11% in March. This was greeted as generally good news. Nationwide, 29,000 new homes were sold and it puts the market on pace to clear 300,000 homes in 2011. It’s the first month that new home sales have jumped, and they were up in the double digits. So this is good news, no? Not really.

The March numbers were up from February. But February’s sales pace of 270,000 was the lowest on record since the Census began tracking the number in 1961. So beating that number is a little like clearing the first round in whatever is the opposite of limbo. What’s more, on a year over year basis, March sales were actually down 22% from a year ago. And that might be the more important number. Despite the fact that the Census says it seasonally adjusts the number, new housing sales seem to always jump in March, perhaps because of the better weather. Perhaps because people are often looking to move in during the summer. New home sales even jumped in March in 2008, which was an all-round horrible year for housing and the economy. Based on that, last month’s jump, which was smaller that others, isn’t that meaningful.

What’s more, market strategist Steve Blitz, Senior Economist, ITG Investment Research points out that at least some of this jump might be artificially enhanced, due to a change in FHA insurance. If you look at the number of new homes sold for over $300,000, where FHA loans tend to not have an impact, there was actually very little increase in March. Says Blitz:

The ongoing problem for new home sales is the competing inventory of not-so-old existing homes for sale, many of them distressed properties, and the inability of the mortgage market to again use innovative financing to conjure first time home buyers out of renters.

This is the ray of hope that people are holding onto in today’s news. But even that analysis is flawed. The idea that if new homes were able to compete with all those foreclosures, then there must be some strength in the housing market. And without those foreclosures, the housing market would look even stronger. But new homes generally do not compete with foreclosures. They attract two kinds of buyers. People looking for new homes are not the type to undertake the project of buying a foreclosed home.

Combine today’s numbers with the weak housing sales report from last week, and it looks like the hope for a housing revival this spring is frosting over.