Monday, April 26, 2010

Common Sense from David Rosenberg............

Last week's number one soundbite on CNBC was the increase from the all time bottom in new home sales. What they did not focus on was the reason for this. Here it is, courtesy of David Rosenberg.

With a month to go before the homebuyer tax credit expires in the U.S., surprise, surprise, we see a ripping 27% MoM surge in new home sales, to a 411k annual unit rate (steepest increase since April 1963). However, even with that marvelous March result, in Q1, new home sales still managed to slide at a 14% annual rate. Nonetheless, homebuilding stocks and copper prices took off and bonds lost ground; however, it would be so much more impressive if it wasn’t so transitory.

As was the case last fall — ahead of what we all thought was the end of the first-time homebuyer subsidy, not to mention the same impact cash-for-clunkers exerted on auto sales late last year — what we have is a brief surge in activity to be followed by a prolonged lull. To put this into perspective, keep in mind that the March figure followed four months of deep disappointment. In fact, the level of new home sales is basically the same as the consensus believed we would be at by now when you look at the monthly growth estimates heading into the data releases since last December.

The fact of the matter is that even with the tremendous amount of policy stimulus, home sales are still down around 70% from their pre-recession highs. The fact is that it is still taking a record median 14.4 months for homebuilders to locate a buyer upon completion of the unit. In addition, the fact that median home prices fell 3.4% last month (average prices slid 11% in the second sharpest monthly decline in the 35-year history of the data series) is testament to the view that demand is still experiencing trouble keeping up with the available supply.

None of this is of course relevant, as the question du jour is whether you bought your 4th washer/dryer combo in the past week. More importantly, have you rented a CAT excavator to level your neighbor's empty but unforeclosed

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