February’s new home sales were an utter disaster, falling to a record low. Mizuho USA economist Steve Ricchiuto may’ve put it best: “Nothing good can be said about the February report on new home sales.” Nothing good should be said of these abysmal numbers, but that didn’t stop some economists from straining to find the silver lining.
RBS economists accurately noted no sign of recovery, but suggested other data, like a slight uptick in the monthly home-builders’ sentiment index, showed the picture wasn’t “nearly so dire,” so “we are hesitant to read too much into this one report.”
Huh? Don’t want to “read too much” into a record low? Yeah, wouldn’t want to misread the fewest number of new homes ever sold in a month. Credit Suisse economist Jonathan Basile points out that the number of new homes for sale — 186,000, not annualized — was the lowest level since November 1967. Maybe we shouldn’t read too much into that either.
Kidding aside, the small number for sale isn’t a bad sign, as it shows builders being disciplined enough to just try to sell what’s on hand before they ramp up more new construction.
RBS wasn’t alone in reaching for a positive spin. RDQ Economics also cites NAHB’s sentiment index (which rose to 17 from 16; it hit 72 in June ’05 and recently as high as 22 last May). Firm says survey suggests “underlying conditions are improving slightly,” and the firm expects a bounce “over the next two months.” Not exactly a heroic call, expecting a “bounce” off an all-time low.
Mizuho’s Ricchiuto doesn’t sound as optimistic. “The sharp decline in prices also suggests that consumer wealth may be taking another hit even though equity valuations have risen,” he writes. “This report and the existing home sales data released yesterday confirm that the housing market is still in free fall.”
Investors may or may not be looking for a silver lining, but they apparently see home-builders as a sort of “why not?” proposition. One of the best sectors on the day was consumer discretionary, which includes the home builders. PulteGroup (3.6%) and Lennar (1.2%) rose, although DR Horton (0.5%) fell.
After all, how much worse can it get?