New Home Sales Increase.....The Rest of the Story

By now we have all read the headlines about new home sales increasing by 9.6 percent in July to a 433,000 annual rate, which easily beat the consensus expected rate of 390,000 (click here for all of the facts and figures).

Somewhere buried in the story is a brief mention of the supply of new homes decreasing to 7.5 months, which is the lowest level since mid-2006. As a matter of fact, the total supply of new homes fell to 271,000, which is the lowest level in 16 years. The dwindling supply of new homes was bound to happen eventually given the almost complete shutdown of the new home industry in the last three years (building permits have been at record lows).

So, as I recall my Econ 101 class at Arizona State University (also known as the "Harvard of the Desert"), simple economics tells us that when demand exceeds supply, prices will increase. I think we are at a point where inventory is so low and demand is picking up ever so slightly that we will begin to see modest price increases in most markets. Price stabilization is the key to the forthcoming housing market recovery. Of course, the key to price stabilization is balanced demand and supply, which appears to be right around the corner.

Toll Says Housing Market Is Improving...

If Bob Toll says the housing market is improving, I tend to believe him.  Not only because Toll Brothers tends to build homes in the higher end of most of the markets that they are active in, and these markets have been extremely hard hit during the past two years, but because Bob Toll always tells it like it is.  He is one of the most brutally honest Homebuilder CEO's in the business.  I always look forward to his comments because they are not only entertaining, but very insightful.  I had the pleasure of speaking on a panel with Bob three years ago and he was the only CEO on that panel to tell it like it was.  At that time, he told the crowd of some 500 Wall Street analysts that this was going to be a long, drawn out housing downturn and to be prepared for some ugly numbers in the coming years.  The other CEO's on the panel painted a much rosier picture.  Guess who turned out to be correct?  So if Bob Toll is telling us that housing is improving, I tend to listen.

Here is an excerpt from the recent Bigbuilderonline article.  To read the entire article, click here.

Evidence that the housing market has gotten better and may keep improving has gone beyond anecdotal tales and become strong enough to indicate a true reverse in the market conditions, Toll Brothers CEO Bob Toll told analysts Wednesday.

"I just think the mood of the market has changed," Toll said during the afternoon conference call on preliminary quarterly numbers, released earlier in the day, that were rosier than anybody expected.

"I don't think it's greater affordability or greater ability to finance [that is driving order improvements], I think it's a better feeling about the present and future of the economy. They, as we, were scared that we were all going into the toilet."

While the number of people visiting Toll Brothers' communities still "stinks," the people who are showing up are serious buyers and they're not quibbling as much about price.

Click here to read the entire article at Bigbuilderonline.com