Housing is more affordable, time to panic
While individuals companies’ results are clearly suffering, many of the macroeconomic trends look just as dismal. On Thursday, the U.S. Commerce Department said June single-family homes sales fell 6.6 percent from May, as the median sales price dropped 1.3 percent.
In June, the median sales price of a new home fell 1.3 percent to $237,900 from $241,000 in May.
There were 537,000 new homes for sale in June, holding the same level reported for May. It would take 7.8 months to clear that inventory at the current sales pace, up from the 7.4 months reported for May.
With sales plunging, home builders are now writing down the value of their unsold homes and the land they have bought for future development. The lower value is reflected in each builder’s tangible book value — what a company could get if forced to hold a fire sale. “The market believes these guys are going to be writing down their book values in the next quarter or two — or more,” Vallecillo said.
About three out four of builders’ stocks are trading below the value of tangible book value, Vallecillo said. Hovnanian Enterprises Inc. (HOV.N) and Beazer trade at about half their book values. The reduction of book value becomes more drastic as home sales continue to plummet.
If car prices fall, is that a bad thing, even if GM and Toyota lose money? If computer prices fall, is that a catastrophe, even if Dell and Intel take a bath? If gasoline prices plummet, and Exxon starts reporting red ink, would the MSM lament the losses? What is the rather panicky concern of the MSM with the profits of construction companies, rather than the affordability of their product, all about?
UPDATE
We’ve previously noted a possible explanation for the MSM’s crocodile tears.
July 26th, 2007 at 2:08 pm
concerned cos’ house prices = household wealth -> household consumption. the same can not be said for cars, computers and the others.
July 26th, 2007 at 7:11 pm
What the Commerce Dept report actually says is that “new” home sales fell “6.6%(+/- 11%)” from May sales. Within a 90% confidence interval we can’t even infer the sign, let alone the magnitude of the change in June over May sales of new homes. The data are always sketchy, susceptible to large revisions, and generally of negligible scientific value. But they make great headlines and the MSM routinely uses such reports to further its own anti-Bush/anti-markets agenda. With a democrat administration in office we wouldn’t hear this talk about “plunging”. Instead we’d hear about the sketchiness of the data, about the forthcoming revisions, about the somewhat different story being told by the sales of existing homes, and about the areas of the country defying the trend.
July 27th, 2007 at 4:00 am
Yesterday, I owed $x on my house. Today, I owe $x on my house. Were I to sell it, I might have gotten a little more a few months ago, but the house I’d have bought to replace it would have cost a little more, too.
Yes, there are some areas where speculators thought they’d make a killing in real estate. They got bit. These are probably the same guys who bought stock in tech companies that had no product and no business model where they would ever make money. At least the land and houses have some value. People have to live somewhere.
Too bad you can’t buy stock in the Federal Government. That is the only thing that grows forever.