New single-family home sales, likely fueled by the federal home-buyer tax credit, were up 26.9% sequentially in March to a seasonally adjusted annual sales rate of 411,000, the Commerce Department reported Friday. It was the highest sales rate since July of 2009 and well above the analyst consensus expectation of a rate of 325,000.
The news set builder stocks on the rise, with late-morning gains ranging from the high 2% range for the more investment-grade companies to the mid 7% and 8% range for the more speculative names, including Hovnanian (+8.37% to $7.12), Standard Pacific (+7.47% to $6.62) and Beazer (+6.58% to $6.77).
Compared with March of 2009, sales were up 23.8%. Inventory of unsold new homes declined 22.1% from an 8.6-month supply in February to a 6.7-month supply in March. Not seasonally adjusted, there were 227,000 new homes available for sale at the end of the month, down from 229,000 in February and 311,000 in March, 2009.
The Commerce Department also revised the February estimate, which was a record low, from a rate of 308,000 up to 324,000.
The March gain was driven by a sales surge of 43.5% in the South, by far the largest of the four reported regions. Sales were estimated to be at an annual rate of 231,000, an increase of 70,000 from February. The South region includes states from Delaware to Florida, from the Atlantic coast to Texas.
The Northeast also was up sharply--by 35.7%, 100% ahead of the same month last year to a rate of 38,000.
The West showed a more modest sequential gain of 5.7% to a rate of 93,000, 25.7% ahead of March, 2009. The Midwest was up 4.3% to a rate of 49,000, 11.4% above March a year earlier.
Prices of new homes fell from February. The median price was down 3.4% to $214,000; the average price was off 11.1% to $258,600. The average price was roughly even with last March; the median price was up from 205,100. Of the new homes sold, 18% were priced under $150,000; 27% between $150,000 and $199,000; 30% between $200,000 and $299,000; 12% between $300,000 and $399,000; 7% between $400,000 and $499,000; 4% between $500,000 and $749,000; and 1% over $749,000.
Citi home building analyst Josh Levin saw the gains as evidence that the federal tax credit was affecting the market. "We observe that 'sold but not started' homes increased 71% month-over-month while 'sold but under construction' homes increased 44% and 'sold but completed' rose a comparatively slower 20% month-over-month," he wrote in a research note. "The massive increase in the first category suggests that to some extent homebuyers rushed to sign contracts for new homes in March so that they can close by the June 30th deadline in order to qualify for the tax credit."
Michael Rehaut at J.P. Morgan saw the report as a positive as well. In a note to clients, Rehaut wrote, "While we believe the strong rebound was certainly helped materially by the upcoming expiration of the tax credit, at the same time we believe the last two months were also depressed due to an earlier pulling forward of demand when the tax credit was initially scheduled to expire at the end of November." Rehaut added that he expects fundamentals to continuing improving and projected positive order growth during the second half of 2010 as community counts, and the overall housing market, stabilize.
Dan Oppenheim at Credit Suisse was less positive. "The tax credit does not appear to create incremental buyers but just shifts the timing of purchases so that the stronger March and April are, the worse May and June will be," he wrote in a note to investors. "We expect the focus to soon shift to the severity of the payback."
Wells Fargo's Carl Reichardt expressed concern about the data itself in his note. "Last month, new home sales hit a record low since the census began collecting the data in 1963, contradicting commentary from builders and our field survey work that conditions were clearly better than a year ago. This month's data however, seems to confirm the commentary. As we had suggested previously, this data does not measure cancellations nor resales of cancellations thus peaks and troughs in the data tend to lag field conditions. Furthermore. while urgency related to the tax credit expiration has been an important driver of Q1 activity, we believe the new home sales data is somewhat overstating its volatility. We note that no calendar quarter homebuilder has exceeded our unit order estimates so far and that field commentary in general, indicate that the tax credit has not proven to be as robust a catalyst to sales as many had hoped. "
Stephen East at Ticonderoga was downright effusive. "'Wow is an appropriate response," he wrote in his research note. "While we were expecting upside to projections, results this month obviously were much stronger than we thought remotely possible ... this month's report should alleviate fears that the tax credit extension has been ineffective. Obviously, we would not expect to see this type of momentum continue post April 30th and believe March results potentially are at risk of downward revisions. However, given the mix of sales this month, it is also obvious that the housing market is becoming more than just a first-time tax credit story. Further, the overall headline, in combination with existing home sales yesterday, can do nothing but increase consumer confidence with respect to the housing market, in our view."