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New Home Sales Collapse - Not Surprising

We've been a broken record for a while on the coming collapse of housing activity following the April 30 expiration of the government's tax credit-induced false reality. This morning, new home sales data finally reflects what purchase applications have been telling us for the last seven weeks. New home sales came in at 300k, down 40% month over month from last month's 504k seasonally adjusted annualized rate. April (the prior month) was actually downwardly revised to 446k from 504k, so pegging this month's number of the revised number looks a tad better - down 33%. Inventory was basically flat at 213k vs 211k last month (though last month was revised up to 214k, suggesting a nominal inventory decline.

This was the lowest sales level since 1963, the year record-keeping began. Not a positive sign for the housing market.

THE HITS KEEP ON COMING FOR HOUSING ... NEW HOME SALES EVISCERATED - 1

 

THE HITS KEEP ON COMING FOR HOUSING ... NEW HOME SALES EVISCERATED - 2

 

THE HITS KEEP ON COMING FOR HOUSING ... NEW HOME SALES EVISCERATED - 3

 

THE HITS KEEP ON COMING FOR HOUSING ... NEW HOME SALES EVISCERATED - 4

Purchase Applications Suggest More Pain to Come

MBA mortgage purchase applications dropped another 1.2% this week sequentially. This brings the tally to six of the last seven weeks that purchase applications have fallen sequentially. For reference, to put things in context, purchase applications are down 70% from the highs in 2005/2006 and are levels not seen since 1. Taking the YTD 2010 applications, which includes the tax credit stimulus, applications are at levels not seen since 1 (including the stimulus!).

THE HITS KEEP ON COMING FOR HOUSING ... NEW HOME SALES EVISCERATED - 5

The stage is now set for a much weaker-than-usual summer housing environment. Housing-sensitive stocks could be at risk heading into the 2H10 and 2011 time frame.

We have an extensive report coming out on this topic on Friday, which Josh Steiner will summarize on a conference call at 11am on Friday for subscribers of his Financials research. Email sales@hedgeye.com if you are interested in learning more about his product and the call.

Joshua Steiner, CFA

Allison Kaptur