CHICAGO, Jan. 27, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: D.R. Horton (NYSE: DHI), Berkshire Hathaway (NYSE: BRK.B), Fortune Brands (NYSE: FO), USG (NYSE: USG) and PPG Industries (NYSE: PPG).
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Here are highlights from Wednesday's Analyst Blog:
New Home Sales Up, but Still Dismal
New home sales in December rose by 17.5% from November, but only to a dismal rate of 329,000. Relative to a year ago, sales are down 7.6%.
While the level was substantially better than the expected rate of 300,000, it is still a very bad level. The eight lowest months on record (back to 1963) for new home sales have all been in the last eight months.
The monthly increase at first glance looks pretty good, but it comes after the November numbers were revised down by 10,000, so even there the increase could be seen as only 13.4%. We are still down from a year ago, and it is not like a year ago was a great time in the homebuilding industry, either.
Relative to the peak of the housing bubble (7/05) new home sales are down 76.3%. The very low May sales rate (282,000) was due to the end of the homebuyer tax credit. New home sales are recorded when the contract is signed, not at closing, as is the case with used home sales. Thus the post-tax-credit hangover came in May for new home sales, not July as was the case for existing home sales.
That effect should have long ago worn off, so you cannot attribute the weakness to the temporary distorting effect of the tax credit. The graph below shows the history of new homes sales (blue, left scale) along with the growth in population (red, right scale), since presumably if you have more people, you will need more places for them to live.
Home Sales & Recessions
Take a very close look at the relationship between new home sales and the grey recession bars. New home sales fall sharply before all recessions (with the exception of the dot.com bust caused recession of 2001) and then start to increase sharply in the middle of, or towards the end of, the recession. That clearly is not happening this time around.
If you want to know why the recovery has been anemic so far, look no further than the graph above! New home sales are vital to the overall economy. If new homes are not selling, then homebuilders have no reason to build more of them. After all, that is very expensive inventory to sit on.
Each new home built creates a huge amount of economic activity. Not only are low new home sales bad for the big homebuilders like D.R. Horton (NYSE: DHI), but also for all the companies that make the products and supplies that go into making a new house. They range from Berkshire Hathaway (NYSE: BRK.B) for bricks, roofing materials, and insulation to Fortune Brands (NYSE: FO) for plumbing fixtures and cabinets to USG (NYSE: USG) for wallboard to PPG Industries (NYSE: PPG) for glass and paint.
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