Hedgeye
New home sales: Poised to double?
April 25, 2013: 12:47 PM ETMore good news for the housing market.
By Joshua Steiner, Hedgeye
FORTUNE -- The chart above shows the ratio of new home sales to total sales historically back to 1999. Currently, new home sales are running at 7.8% of total sales. From 1999 to 2005, new home sales averaged a fairly consistent 16% of total sales. The low watermark was 5.5% in May 2010.
The trend in new home sales as a share of total is encouraging, rising steadily since year-end 2010. If new home sales return to their 1999-2005 average of 16% of total sales, this would imply ~800k new home sales, or roughly double the current 417,000 run rate. This assumes no increase in the current 5 million existing home sales run rate, which we also expect to increase. This backs the trend in recent household formation that implies a need for roughly two million new housing units per year vs. the current construction rate of one million.
On a year-over-year basis, new home sales in March were up 18.5%. The inventory of new homes for sale rose slightly to 153,000 in March, up from 152,000 in February. This continues a trend of rising inventory, marking the seventh consecutive month in which inventory has grown, albeit off an all-time low base of 141k in August. When looking at inventory on a months supply basis, March stood at 4.4 months, which was flat with the prior month. For perspective, months supply floated between 4-5 months from 1997-2005 and has been in the mid-4 to low-5 months range this year.
We would expect to see inventory levels rise, as this reflects a strengthening market. This is counterintuitive, we realize, but in looking at the long history of price in relationship to inventory levels, they have a strong positive correlation. This should facilitate growth in sales volume.
The median price of new homes sold in March rose 5.3% vs the prior year, down slightly from the prior month's 5.6% increase.
Meanwhile, FHFA Home Price Increases Accelerated in February
February's FHFA home price data rose 0.7% month over month and 7.07% year over year. This compares with January's year-over-year change of +6.65% and represents the highest index value we've seen since November 2009. This acceleration in the FHFA data is consistent with our expectation that prices will continue to rise over the coming year.
We've also included a chart showing the trends at the state level through the end of 2012, the latest state-level data available. In the last chart of this note we show the 5-year HPI change by state on the x-axis and the 1-year change on the y-axis. The trend shows that those states hardest hit by the downturn are showing some of the best performance. This dynamic includes: NV, AZ, FL, CA, and ID. At the other end of the spectrum, ND, DC, and CO are all up over 10% in the past year and are up over the last five years. The New England and mid-atlantic states of NJ, CT, NH, NY, and MA have shown some of the weakest returns over the last year ranging from modestly negative to modestly positive in spite of having been mid-pack performers over the past five years.
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Cyprus 'crisis' may be short-lived
European leaders have strong incentives to try and smooth over this 'crisis' by signaling that Cyprus is a unique and extreme case.
By Matthew Hedrick, Hedgeye
FORTUNE -- The market's reaction to Cyprus's bailout is overdone, and these 'crisis' conditions will be short-lived.
A quick update on the latest development is that parliament has delayed until Tuesday a scheduled vote on the proposed bailout, namely on the levying of a one-time tax MORE
Mar 18, 2013 1:43 PM ET -
Greedy bankers aren't to blame for ratings agencies' standards
The only real outcome of U.S. v Standard & Poor's is likely to be an industry-wide ban on putting anything in writing.
By Moshe Silver, Hedgeye
FORTUNE -- In December 2001, Richard Reid tried to blow up an American Airlines international flight by igniting explosives in his shoes. The FAA immediately swung into action, and in short order all departing passengers had to remove their shoes for security screening.
On Christmas Day MORE
Feb 12, 2013 4:18 PM ET -
First 3 tasks for Mary Jo White at the SEC
The SEC has a severe image problem. Its next chairman will have to take highly visible steps right out of the gate.
By Moshe Silver, Hedgeye
FORTUNE -- President Obama has nominated Mary Jo White to head the SEC. Here's the good news: White is one of the nation's most accomplished and effective attorneys. Known and respected far and wide, she can do pretty much anything she wants to. Here's the MORE
Jan 29, 2013 5:00 AM ETPosted in: Hedgeye -
How Bernanke stole Christmas
The Federal Reserve's latest bond-buying plan is far from a watershed moment.
By Moshe Silver, Hedgeye
FORTUNE -- While the rest of the world prepared to shop till they drop for Christmas, Fed Chairman Bernanke was indulging in the playful Jewish tradition of the season, known as Chanukah Gelt -- "Chanukah money." Each day during the Festival of Lights, parents give small amounts of money to their children. The children take MORE
Dec 19, 2012 12:28 PM ETPosted in: Hedgeye -
Why Obama's win may boost housing
The days of easy money aren't over yet.
By Joshua Steiner and Robert Belsky, Hedgeye
FORTUNE -- One of the few beneficiaries of President Obama's re-election in the financial services landscape is housing. Here are three main reasons why:
Rates. President Obama and Bernanke are synonymous, which means a continuation of easy monetary policy and pressure on the long end of the yield curve. This downward pressure continues to push mortgage rates to new MORE
Nov 8, 2012 10:55 AM ETPosted in: Hedgeye -
Will Sandy spark an electoral storm?
After the storm, we go back to a Presidential race that is increasingly becoming too close to call.
By Daryl G. Jones, Hedgeye
FORTUNE -- For many on the eastern seaboard this morning, the power being out is no joke. By some estimates the total number without power exceeds some 8 million people. I think the best thing you can say when a storm like this occurs is that it could have MORE
Oct 30, 2012 11:29 AM ETPosted in: Hedgeye -
Does corporate lobbying benefit society?
Lobbying costs money, which hurts investors. It often leads to new regulations, which cost society even more. Can regulation be One Size Fits All?
By Moshe Silver, Hedgeye
FORTUNE -- Henry Friedman, of UCLA, and Mirko Heinle, of the Wharton School, have co-authored a paper titled "The Merits Of One-Size-Fits-All Regulation." They argue that a uniform approach to securities regulation yields greater societal benefit, better investor outcomes, and more market stability than MORE
Sep 28, 2012 11:09 AM ETPosted in: Hedgeye -
The bond bubble still has room to grow
As long as central banks keep rates low, the bond market has room to keep growing.
By Daryl G. Jones, Hedgeye
FORTUNE -- Author Ian Fleming created James Bond, code named 007, in 1953 and subsequently featured him in twelve novels and two short story collections. Bond was an intelligence officer in the Secret Intelligence Service and a Royal Naval Reserve Commander. Fleming based this fictional character on many of the MORE
Aug 21, 2012 2:55 PM ETPosted in: Hedgeye -
Three ugly economic predictions no one wants to hear
Money laundering, bank break-ups, and corporate dividend cuts. Sorry, we know no one wants to hear it.
By Moshe Silver, Hedgeye
FORTUNE -- Three predictions: The first because we know how the money business works – though we do not have proof to hand. The second we are certain will happen – because it has long been the obvious step, and because those most directly affected by it, and who stand MORE
Aug 16, 2012 10:25 AM ETPosted in: Hedgeye
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Hedgeye, a real-time investment research firm founded in 2008 by former Carlyle-Blue Wave portfolio manager Keith McCullough, operates as a virtual hedge fund. Staffed by research analysts from across Wall Street, Hedgeye offers fundamental, macro and sector analysis, present picks in a transparent way to its clients. It has built a stable of subscribers, which includes hedge funds and mutual funds, and recently launched a retail investor product.
