New home sales came in at 19,000 units in January, according to the Commerce Department. This is the lowest monthly level of sales in recorded history. The government began taking the survey in 1963. In contrast, sales in January 2005 were 92,000 units. This is a 79% decline. Sales are down 21% since January 2010.
Inventory is declining, but too slowly to improve the supply demand imbalance. Total units available dropped to 187,000 from 231,000 last January, but the inventory to sales ratio rose from 9.6 to 9.8. The inventory to sales ratio in January 2005 was 4.8, and in January 2006, near the peak of the bubble, was only 5.9.
Finished inventory dropped to 78,000 units from 99,000 units in January 2010. That's a big drop and should help the builders, but again it wasn't enough to improve the ratio of the inventory of finished units to sales. That stood at 4.1, unchanged from January 2010. From January 2003 to January 2005, that ratio was never more than 1.0.
The year long rally in the homebuilders has been built on a foundation misplaced hope. The reality is that there seems to be a case here for shorting the builders to zero, or at least the ones running short of cash.
---Lee Adler at The Wall Street Examiner
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