US New House Sales Rise - Some Good News For The Economy

OK, one month does not make a trend, and we have lots and lots of ground to make up.  But combine the news on New Home Sales (NHS) with the report earlier this week on existing home sales and today’s durable goods report, and we just might have some good news for the economy.

Remember the mantra - at this point, more new housing starts bad, more new home sales good.

Well, in February, NHS were up 4.7% to a seasonally adjusted annual rate of 337,000 from January’s rate of 322,000. The January number was revised up a significant 4.2% from the initial read of 309,000.

Still, nationwide, NHS are down 41.1% from a year ago, and just a tiny fraction of the 1.4 million annual rate at the peak of the insanity in mid-2005. Inventories also dropped by 2.9% from January and are down 30.8% over the last year. Total actual NHS (not seasonally adjusted) in the month were just 27,000, but that is up from 23,000 in January (also traditionally a weak month) but down from 48,000 a year ago.

The first chart below (larger version available here) shows the recent history of NHS by month on a non-seasonally adjusted basis. It makes pretty clear that while it is nice to see things start to rise we are still in a very deep hole:

The combination of rising sales and falling inventories pushed the months of supply down to 12.2 months, from 12.9 months in January (13.3 months on the basis of the original estimates). This is still an absurdly high level, but at least it is moving in the right direction.

A year ago, the months supply stood at 9.7 months. It hovered around 4 months during the housing bubble, and normal is about 6 months. Just how alarmingly high even this improved figure is can be seen in the chart below. The only negative number in the report was that the median price fell to $200,900 from $206,800, a 2.9% decline, and down 18.1% from a year ago.

Not all regions fared equally well. The gains were concentrated in the all-important South, which is by far the biggest region for housing sales. It was up 9.7% on the month, but still down 38.5% on a year-over-year basis.

How important is Dixie to NHS? Well, in February it was responsible for 57.3% of all NHS. The West also did well, posting a 6.6% increase. However, the West had been the hardest hit (gee, “surprise, surprise” at that - since most of the population of the West is in the “bubble-icious” state of California, with quite a few more in bubble hotspots like Arizona and Nevada) and is down 54.2% on a year-over-year basis. The Northeast and Midwest regions were both down on a month-to-month basis, by 3.3% and 9.1% respectively. On a year-over-year basis, they are down 25.9% and 35.1%.

On an economic news basis, today is the best day we have had in a long, long time. I don’t want to be too giddy, but it does show that the recent rally in the market does have some basis in economic reality.

I’m not ready to say it is time to go out and buy the homebuilders.  However, if I were short firms like D.R. Horton (NYSE:DHI) and Lennar (NYSE:LEN) I would certainly be inclined to cover.

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