New home sales rise, has the sector found the bottom?

Has the new home construction sector found the bottom?

According to the U.S. Census Bureau, new home sales in September (the most current month of reporting) hit 389,000+, up from 368,000+ in August, which was revised this month down from 373,000+. This level of sales marks its highest point since April 2010 when there was a rush on homes as the mortgage tax credits were set to expire.

The Bureau reports the months of supply fell in September to 4.5 months at the current sales pace, sliding from August’s upwardly revised 4.6 month reading. On a national scale, supply has fallen nearly a third over the last 12 months, and has fallen quite dramatically from the post-bubble burst of 12.1 months in January 2009. Economists consider current supply levels as normal, which is good sign for the new home sector.

Digging deeper

While the national averages paint one picture, a regional breakdown tells another. For instance, sales in the Northeast have risen a stunning 75.0 percent over the past 12 months, and the West rose 62.1 percent, yet sales only rose 24.3 percent in the South, and actually fell 31.9 percent in the Midwest.

According to the Bureau, 12.9 percent of new homes sold in September cost less than $150,000, while 19.3 percent sold cost $150,000-$199,999, and 32.2 percent cost $200,000-$299,999. More expensive homes represented fewer sales, with 16.1 percent of new homes sold in September costing $300,000-$399,999, and 9.7 percent costing $400,000 or more.

Sales also varied by what stage of construction a home was in, with homes old prior to ground breaking doubled over the last 12 months. While homes sold during construction rose a quarter, the level of sales of completed homes remained the same.

Calling it a comeback?

Although data has been positive for the sector, and builder confidence is on the rise, there are still more builders that are pessimistic about the coming months than are optimistic, as lending remains tight (unreasonably so, some builders claim), competition with reduced price foreclosure and short sale listings, new home sales are improving, yet are still not at pre-recession levels, and calling it a comeback may be premature. Positive signs do indicate, however, that the new home sector may have finally found its bottom.