Zacks.com Analyst Blog features: D.R. Horton (NYSE: DHI), Berkshire Hathaway (NYSE: BRK.B) Fortune Brands (NYSE: FO), PPG Industries (NYSE: PPG) and International Paper (NYSE: IP).
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Here are highlights from Friday’s Analyst Blog:
New Home Sales Disappoint
New home sales in November rose by 5.5% from October, but that puts them at a dismal rate of 290,000. The percentage increase is a bit exaggerated as well, since the October numbers were revised down to 275,000 from 283,000. Thus relative to where we thought we were, the increase is more like 2.5%.
The seven lowest months on record (back to 1963) for new home sales have all been in the last seven months. About the only good thing you can say about this report is that it was not the absolutely worst month on record. That dubious honor is still held by August 2010, with a seasonally adjusted annual rate of 274,000.
Relative to a year ago, sales are down 21.2%. It's not like a year ago was a great time in the homebuilding industry, either. Relative to the peak of the housing bubble (July 2005) new home sales are down 78.8%.
New home sales are vital to the overall economy. If new homes are not selling, then home builders 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), they are also bad 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 PPG Industries (NYSE: PPG) for glass and paint to International Paper (NYSE: IP) for lumber.
In terms of employment, it is not just all the roofers and framers who lose jobs due to weak new home sales, but employees at all the firms that make the stuff that goes into making a new home. Of course, if those employees are out of work, they are not spending on other goods and services dragging down a host of seemingly unrelated businesses. Not that the direct impact of construction jobs should be underestimated. Since the recession started, one out of every four jobs lost has come from the construction industry.
Inventories of new homes declined by 2.0% on the month and are down 16.5% from a year ago. In absolute terms, new home inventories are in very good shape, at the lowest levels since the late 1960’s.
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