What’s Really Happening in the New Home Sales Market

I’m starting to believe that reporters never get a story right. In specific, I’m talking about last week’s news that March new home sales rose by 13.8%. The stock market happened to be up that day and I saw three news reports on the Internet claiming the market was up because new home sales jumped 13.8% in March (although the two had nothing to do with each other). On the financial radio station I listen to, they were playing the same tune. claiming the surprise jump in new home sales was causing the market to rally.

These reporters don’t know what they are talking about. And I guess that’s why we publish PROFIT CONFIDENTIAL daily–so you know what the financial numbers will really mean for you!

The March new homes sales report was actually a catastrophe. Yes, in March there was a 13.8% jump in new home sales. But that jump was from February. If you remember, February new homes sales were about the worst in recent history. There was no doubt March new home sales (the beginning of the spring market) would be better than February’s showing.

But here’s what the reporters failed to tell you, or maybe they just didn’t read the full report from the U.S. Commerce Department:

— The median price of a new home in the United States fell 2.2% in March 2006 from a year ago. Yes, new home prices, on an annual basis, are falling for the first time in years.

— Housing inventory, which is the number of new homes on the market, skyrocketed 25% in March of 2006 from March 2005–the biggest annual increase in 33 years.

The new home market is not looking good. And the stock market knows it. On the day the Commerce Department announced the March new home report, stocks of major American home builders (like Centex) actually gapped down in price. (Too bad reporters don’t understand how to read stock price charts.)

The news on mortgage applications is no better. The U.S. Mortgage Bankers Association said last week its index of mortgage applications was at the lowest point since November 2003.

What does this all mean for investors like you and me? With new home prices falling for the first time in years, higher interest rates are taking a toll on the construction market. And, with so much of the U.S. economy based on activity in the construction market, the American economy is actually starting to slow. not positive for the stocks of American corporation that fair best when consumer spending is strong.