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.
Vitner says he's not surprised that builders' stock prices are down according to the data, noting that the casual observer will look at the numbers and focus on how they're below estimates. Some will also make the mistake of assuming that because the median price is down, then prices for new homes across the country must be declining, he says. David Wilson, president of the National Association of Home Builders and a custom-home builder from Ketchum, Idaho, said in a statement that homebuilders are seeing a "very modest slowdown" in what has been a robust sales pace this year. "Housing demand remains quite healthy and our monthly survey of builders indicates that they continue to see plenty of traffic in their sales offices and still have an upbeat view of sales prospects for the next six months," Wilson said. "We are definitely headed for record home sales in 2005," said NAHB Chief Economist David Seiders. "However, the pattern of sales in recent months suggests that the new-home market may have tapped out around mid-year, a conclusion consistent with findings from our builders surveys." "We're projecting further modest erosion in home sales and housing production as the interest rate structure continues to move higher, although housing-market activity will be buoyed to some degree in the wake of this year's hurricane season," Seiders added. Wachovia projects that the housing market will top out this year, with sales and new construction starts for new housing dropping 3% to 5% in 2005. The firm also expects existing-home sale prices to be up 15% this year and 7% next year.