New-Home Sales Rise 16.2% as Prices Decline
By MICHAEL CORKERY
May 25, 2007
Sales of new homes surged in April as prices plummeted, indicating that builders are making huge concessions to entice buyers.
The Census Bureau said sales of newly constructed homes rose 16.2% last month to a seasonally adjusted annual rate of 981,000 homes, the largest monthly gain in 14 years and far exceeding economists' expectations. But the report also found that median prices tumbled 10.9% to $229,100 as builders offered deep discounts and other incentives.
"Aggressive sales techniques being employed by builders are now showing some success," David Seiders, chief economist at the National Association of Home Builders, said in a statement.
That is an encouraging sign, say some economists, because it suggests that demand for housing can be revived if prices fall in line with buyers' expectations. Still, economists aren't ready to say the market is on the mend.
"It could mean that we have hit bottom, but it's too early to make that call," said Patrick Newport, an economist at Global Insight Inc. "We need a couple more good months before we can say that things are turning around."
Economists and analysts caution that the government's monthly new-home-sales report is highly volatile, uses a small sample size and may overstate conditions in the housing market because it doesn't include cancellations of contracts on new homes. "We think that April was yet another month in which the Census Bureau data clashes with reality," Daniel Oppenheim, a housing analyst at Banc of America Securities, wrote in a report.
Robert Toll, chief executive of Toll Brothers Inc., the luxury-home builder based in Horsham, Pa., was also cautious about housing conditions when he talked to analysts yesterday after the company released fiscal second-quarter earnings. "I would say that we have not got the bad times behind us yet," he said.
Toll said net income declined 79% to $36.7 million, or 22 cents a share, in the quarter ending April 30. On average, analysts polled by Thomson Financial expected earnings of 25 cents a share.
Mr. Toll noted "glimmers" of strength in markets such as New York City; Austin, Texas; Dallas; and Raleigh, N.C. That was somewhat consistent with the Census Bureau report, which found that sales were strongest in the South, where they were up 27% in April from a month earlier.
The government report found that sales over the same period increased 8.5% in the West and 3.8% in the Northeast. Sales fell 4% in the Midwest.
Toll said it expects to complete between 6,100 and 6,900 homes in 2007 but declined to give full-year earnings guidance, saying it can't estimate future write-offs, because of the uncertain market.
On the bright side, Toll said cancellations fell to 19% in the second quarter from 30% in the first quarter and 37% in the fourth quarter of last year. Still, cancellations in the second quarter remain well above the company's historic rate of 7%.
Mr. Toll told analysts he had become a "little more confident" about sales trends in recent weeks. "But I would emphasize the little."
By MICHAEL CORKERY
May 25, 2007
Sales of new homes surged in April as prices plummeted, indicating that builders are making huge concessions to entice buyers.
The Census Bureau said sales of newly constructed homes rose 16.2% last month to a seasonally adjusted annual rate of 981,000 homes, the largest monthly gain in 14 years and far exceeding economists' expectations. But the report also found that median prices tumbled 10.9% to $229,100 as builders offered deep discounts and other incentives.
"Aggressive sales techniques being employed by builders are now showing some success," David Seiders, chief economist at the National Association of Home Builders, said in a statement.
That is an encouraging sign, say some economists, because it suggests that demand for housing can be revived if prices fall in line with buyers' expectations. Still, economists aren't ready to say the market is on the mend.
"It could mean that we have hit bottom, but it's too early to make that call," said Patrick Newport, an economist at Global Insight Inc. "We need a couple more good months before we can say that things are turning around."
Economists and analysts caution that the government's monthly new-home-sales report is highly volatile, uses a small sample size and may overstate conditions in the housing market because it doesn't include cancellations of contracts on new homes. "We think that April was yet another month in which the Census Bureau data clashes with reality," Daniel Oppenheim, a housing analyst at Banc of America Securities, wrote in a report.
Robert Toll, chief executive of Toll Brothers Inc., the luxury-home builder based in Horsham, Pa., was also cautious about housing conditions when he talked to analysts yesterday after the company released fiscal second-quarter earnings. "I would say that we have not got the bad times behind us yet," he said.
Toll said net income declined 79% to $36.7 million, or 22 cents a share, in the quarter ending April 30. On average, analysts polled by Thomson Financial expected earnings of 25 cents a share.
Mr. Toll noted "glimmers" of strength in markets such as New York City; Austin, Texas; Dallas; and Raleigh, N.C. That was somewhat consistent with the Census Bureau report, which found that sales were strongest in the South, where they were up 27% in April from a month earlier.
The government report found that sales over the same period increased 8.5% in the West and 3.8% in the Northeast. Sales fell 4% in the Midwest.
Toll said it expects to complete between 6,100 and 6,900 homes in 2007 but declined to give full-year earnings guidance, saying it can't estimate future write-offs, because of the uncertain market.
On the bright side, Toll said cancellations fell to 19% in the second quarter from 30% in the first quarter and 37% in the fourth quarter of last year. Still, cancellations in the second quarter remain well above the company's historic rate of 7%.
Mr. Toll told analysts he had become a "little more confident" about sales trends in recent weeks. "But I would emphasize the little."
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