August New Home Sales Tumble -8.3% MoM

New home sales fell to the lowest rate in seven years, declining -8.3% MoM (consensus -5.2%) in August, and have fallen 21% YoY. Sales declined in the South (-21% MoM) and West(-15% MoM), but rose in the Northeast (+42% MoM) and Midwest (+21% MoM). The strength of sales in the Northeast is being attributed to a special sale by a New Jersey homebuilder.

Inventory rose to 8.2 months supply (from 7.6 months), at the current sales pace. The recent high was 8.3 months in March. One positive is that the absolute number of new homes for sale has fallen -7% YoY. The inventory of completed homes held constant in August.

The median price of new homes fell -7.5% YoY, as builders increased incentives. This was the largest decline in median home prices since 1970! The mean price fell a slightly larger -8% YoY to $292k. For comparison, the mean price in March was $329k.

New home sales, representing about 15% of monthly home sales, are considered to be a more timely indicator of home demand than existing home sales, which lag contract signing by one to two months. Home builders have also indicated that cancellations have been rising. This morning KB Homes said third quarter cancellations had risen to 50% from 34% in the second quarter, indicating that even today's poor data may be overstating true demand.

Rising inventories, tightening credit conditions, and falling home prices mean that the end of the housing slump is probably not just around the corner.

The regions of the country very greatly in market size. The Northeast region is the smallest, and had new home sales of 74k in August. The South is the largest region, with new home sales of 407k in August. The net increase in the Northeast was +22k homes versus a decline -70k in the South. This is the reason that the total number was negative, even though the Northeast had a huge improvement.