New home sales in August rose a less-than-expected 0.7% to a seasonally adjusted annual rate (SAAR) of 429,000. Sales had been expected to come in at 440,000. Sales were also 3.4% below the year-ago level of 444,000.

The result was especially disappointing since this was probably the last month that one could buy a new home and still close on it in time to get the first-time homebuyer tax credit.

Still, there was some good news in the report. Inventories fell 3.7% to 261,000 and are down 36.5% from a year ago. On a months-of-supply basis, that gets us back down to 7.3 months, from 7.6 months in July and 11.1 months a year ago.

The months-supply metric peaked out in January at 12.4 months. Over the long haul, six months is about normal, although during the housing bubble we were frequently below four months. Thus relative to sales, we are almost at normal levels, and on an absolute basis, inventories are quite lean.

It is also worth pointing out that the August rate is 30.4% above the low of 329,000 set in January. That is not exactly a shabby move, or at least it wouldn’t be if it were not coming off such an abysmal base.

The first chart (from http://www.calculatedriskblog.com/) shows the history of new home sales on a seasonally adjusted basis. It shows that even with the rebound, and a much larger population, new home sales are running at levels associated with the bottom of previous recessions. The chart also shows why this is such an important indicator of the economy.

New home sales are the biggest component of residential investment — a direct input into GDP — and also one of the most volatile parts of GDP, and one that tends to move before the rest of the economy. Falling home sales is one of the biggest reasons we go into recessions, and rising new home sales are one of the biggest reasons we come out of recessions.

While on a national basis new home sales were almost flat on the month and down just a little bit now on a year-over-year basis, those number hide extremely wide differences on a regional basis, both on a month-to-month basis and year over year.

This month, the West was by far the strongest with new home sales jumping 12.1%. The West is also the strongest on a year-over-year basis with sales up 30.4%.

The Northeast is also strong when measured year over year, with sales up 28.6%, but it was the weakest relative to last month with a 16.3% decline. However, the Northeast is the smallest of the regions, accounting for only 8.4% of all new home sales in August.

The Midwest was also weak, falling 5.8% for the month. That region has not seen a recovery yet on a year-over-year basis, with sales still off 31.9% from a year ago.

The super-important South region was unchanged on the month, and is off 11.1% year over year. The South accounted for 52.2% of all new home sales in August.

Just one caveat on the regional figures though: the numbers are estimates and are subject to wide standard errors.

Like used homes (see here for yesterday’s blog on the topic) there is a distinct seasonal pattern to new home sales, but it is not the same seasonal pattern. August is traditionally a much more important month for existing home sales than for new home sales, which tend to peak in March, not in the summer like used home sales.

The second graph (also from http://www.calculatedriskblog.com/) shows the actual levels of new home sales by month, not the SAAR. On that basis, we reached a real milestone this month, it is the first time that actual new home sales were not lower than the corresponding year-ago month since January of 2005. Well, if you keep lowering the bar far enough, eventually you will be able to get over it.

All in all, not as weak a report as the used home sales numbers yesterday, but still an overall disappointment. I suspect that the shares of the homebuilders like Lennar (LEN), D.R. Horton (DHI) and Hovnanian (HOV) will not like this news, especially since most of them have run up very far (three and four fold) in the hopes of a recovery.  


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