New-Home Sales Lower Than Expected

Updates from 12:09 p.m.

Pulte Homes'(PHM) strong quarterly earnings weren't enough to lift the homebuilding sector out of the red early Thursday, as investors instead focused on September's lower-than-expected new-homes sales data.

The Census Bureau said Thursday that sales of new one-family homes were at a seasonally adjusted annual rate of 1.222 million in September, up 2.1% from August but down 0.1% from September 2004. Economists expected sales of 1.25 million in September, according to Reuters.

The median sales price of new houses sold was $215,700, down from $228,800 in August, and the lowest level since last September. The estimate for new houses for sale at the end of September was 493,000, representing a supply of 4.9 months at the current sales rate.

The Philadelphia Homebuilding Index fell 2.4% on the news, led by declines of over 3% each for Centex(CTX), Toll Brothers(TOL), Hovnanian(HOV) and Meritage(MTH). Even Pulte Homes, which reported better-than-expected quarterly earnings late Wednesday, fell 2%.

Mark Vitner, a senior economist with Wachovia, said the new-home sales numbers aren't nearly as bad as they might look upon first glance.

"There's some talk that demand for new homes may be waning. I think that's probably a little bit premature," Vitner says. "There are some shifts among purchases. Sales of higher-priced homes are slowing a little bit. There is still exceptionally strong demand at the entry level, and that's one of the reasons that the median price has come down."

He notes that sales have been particularly strong in the South and show no signs of slowing in that region. One-third of all new-home sales in the country are in Florida, Georgia, Texas and North Carolina. "The economies are exceptionally strong there," he says, noting that Florida's unemployment rate is 3.5%, its lowest level ever, and that Texas is being boosted by an improving tech market.