U.S. New Home Sales Plumb RecordLow, Weather or Not?

Whether record snowfall this season hurt housing activity is tough to say. This morning's report that new home sales fell 11.2% from December to 309,000 (AR) following that month's moderate decline suggests that it did, but January single-family housing starts were reported last week to have risen. Perhaps builders have thicker skin than buyers? It remains to be seen. Nevertheless, January sales fell well short of Consensus expectations for 355,000 and reached a record low for the series which dates back to 1963. 

The one-third m/m drop in home sales in the Northeast certainly suggests a strong weather factor after they rose sharply during December. Conversely, Mid-West sales rose 2.1% following their sharp December decline. In the West, sales drifted lower and neared their record low while sales in the South fell for the fifth month in the last six.

Home prices also were quite weak last month posting a 5.6% decline from December to $203,500. Prices fell 2.4% during the last twelve months to the lowest level since late-2003. Since the 2007 peak prices have fallen 22.5%.

Price discounts had been lowering the inventory of unsold homes, but weakness in sales and stable starts recently have lifted the inventory to   its highest level since May. The months' supply of unsold homes also has increased to 11.1 months from its July low of 7.2 months though that remained down from the high of 12.4 months in January '09. Despite the shrinkage of inventory, it still took a record median 13.9 months to sell a new home as of December.

Fed Chairman Ben S. Bernanke's Semiannual Monetary Policy Report to the Congress can be found here. 

The housing market's upturn increasingly looks to have lost steam. The Mortgage Bankers Association reported that mortgage applications slipped 8.5% last week for the third week consecutive weekly decline. Nevertheless, it's not all bad news since a late-January jump in applications was not wholly unwound. The February average of applications still is up 8.8% from January.    

For last week, applications to refinance mortgages fell 8.9% and applications to purchase a home fell 7.3%, the third down week. Overall, there has been a downtrend in purchase applications despite an uplift provided by an up-to $8,000 Federal tax credit for first-time homebuyers. During the last ten years there has been a 51% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales. The correlation has lessened recently.

The effective fixed interest rate on conventional 15-year mortgages moved higher again to 4.68%. For the month overall rates have been near the six year low. For 30-year mortgages the rate also ticked up to 5.30% from a November average of 5.06%. Rates reached a high of 5.79% in early-June. Interest rates on fixed 15-year and 30-year mortgages are closely correlated (near-90%) with the rate on 10-year Treasury securities. Rates on adjustable one-year mortgages fell to 6.64% last week from a November average of 6.81%. 

The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site here. The figures for weekly mortgage applications are available in Haver's SURVEYW database.

Manufacturing orders are up by 0.8% in December but the sequential growth rates do not show that the growth of orders continues to accelerate. MFG sales are also slowing as capital goods and intermediate goods sales rates over three-months are weaker than sales rates for six months

In December domestic orders have been especially strong rising by 6.1% while foreign orders advanced by 2.2%. But over three months Domestic orders are up at just a 0.8% rate while foreign orders are up at an 11.9% pace. The pattern of growth rates in the chart shows us that domestic and foreign growth rates peaked about six months ago and have since been slowing down even though they continue to grow. This is one reason for concern about whether the recovery is building momentum or not.

Among large EU/EMU countries Italy and the UK are demonstrating still accelerating orders from 12-months to six months and again from six months to the three-month horizon. In France orders accelerated in six months compared to 12-months and have stayed near that mark for 3-month growth rates. Germany shows a decided deceleration with growth rates rising in six-months compared to 12-months then submerging and going negative for the recent three-month period. Still the Yr/Yr growth rates moved sharply higher in December compared to November everywhere but in the UK. But the sequential growth rates do give more of an up-close view of growth and on that basis momentum truly is fading.

Obviously the various EU/EMU countries have some differences. But the overriding message is that orders growth is slowing. It is still positive but it is slowing. Europe now will be burdened with the growing and festering problems of Greece and possibly other debt ladened e-Zone members. The European consumer does not seem to have gotten in gear. The recent German IFO survey was weak but it may have been impacted by weather. We are always on a bit of a weather watch at this time of year. But apart from weather there are ample trends that tell us to be cautious about depending on the European recovery being too strong.