Home is where the homes are new and the weather is good, or at least better.
The Commerce Department today reported that
new-home sales rose 2.6% in March over February, but the figures were still down by an impressive 23% year over year.
The results were definitely seasonally adjusted, as the department attributed the improved sales to better weather in the Northeast and Midwest. Sales declined in other regions, however.
The rise in sales came Wednesday against the backdrop of the previous day's report that
existing-home sales had dropped sharply during the same period.
Perhaps most indicative of where things are headed in the new-housing world is the 1.4% decline in inventory against March 2006. That's the largest one-year drop in inventory on record, and is another indication that most homebuilders have moved out of denial and into acceptance of current market conditions.
In other words, builders appear to have slowed building and are holding inventory off the market in order to give them time to trim the current glut of unsold homes, the supply of which now stands at roughly 7.8 months.
Despite the tightening up they've been doing, homebuilders may also have to keep squeezing: The March sales pace was reported to have slowed to well below forecasts of 890,000 homes for the month to 858,000; February's reported velocity already trimmed back to 838,000.
That's the slowest annual pace since September 1999 -- and it's not likely that the upward trend that kicked in eight years ago will repeat itself this time around, and certainly not in 2007. With an anticipated election-year slowdown looming in 2008, the brakes could be engaged for at least 18 months.
The High-End Lift
One apparent anomaly -- the median sale price for new homes rose a hefty 6.4%, even though sales volume was weaker than expected. Why? It's the money -- those who have it aren't afraid to spend it on big-ticket homes. (That sentiment was also reflected in an uptick in durable-goods orders for March.)
Buyers interested in higher-end or luxury homes are paying up. With the pace of sales near a low ebb, it's no wonder that sales of upper-bracket homes are pulling up the median price, especially as such models begin to account for a larger percentage of overall sales.
That trend could bode well for hard-hit higher-end homebuilder
. Toll's stock has already climbed out of a pit and is hovering solidly in the middle of its 52-week range.
Another factor in the mix that bodes well for Toll, if not immediately then by the end of 2008 as construction continues, is the robust condominium market in New York City. Toll Brothers Urban is in full tilt on several high-rise luxury construction projects in Manhattan and on the East River waterfront in Brooklyn, both of which are experiencing solid sales volume and even some price growth.
These are the kinds of projects that are lending a hand to the dismal numbers reported Tuesday by the National Association of Realtors for existing-home sales in March.
As feeble as things may seem in the new-home market, those in the younger, family-oriented demographic who are looking to buy -- and who can still get financing -- are still more attracted to new single-family homes and less likely to seek -- at least at current prices -- existing homes, many of which are being put up for sale by downsizing and urbanizing baby boomers and empty nesters.
The issue of
pricing and affordability that is a huge factor for sellers of existing homes -- and that could eventually create a major price downdraft in that market -- remains a less important element in sales of new homes.
After all, large homebuilders, despite their recent troubles, remain well capitalized and comfortable --
announced Wednesday that it is boosting its quarterly dividend by 50% to 15 cents. The concessions they are offering today can still be said to nibble at the margins, not gobble them up.
Until a new generation discovers the pleasures of old homes, the pattern of bifurcated housing markets is unlikely to look much different going forward.
At the time of publication, Peter Slatin had no positions in stocks mentioned.
Slatin publishes the independent real estate newsletter theslatinreport.com. He has written extensively about real estate and architecture for publications ranging from Barron's to The New York Times, and is on the editorial board of Real Estate Portfolio, published by the National Association of Real Estate Investment Trusts. He was the founder and editor of Grid, an award-winning real estate business magazine.