Absolute Sticker Shock for New Home Prices

After the U.S. Census Bureau released data on new single-family home sales for March Wednesday morning, the big shocker was that new home sales fell by a whopping 14.5% to a seasonally adjusted annual rate of 384,000 from 449,000 in February.

While economists were looking for a rate of 455,000 in March, this was 13.3% below the rate for March 2013. The culprit may simply be sticker shock as the new price index was challenging a new high. We would keep the supply and demand in step as well — during the peak in 2005, new home sales were running at almost 1.4 million units.

The median sales price for new homes was $290,000, but the average sales price was $334,200. Inventories ticked up slightly from 189,000 in February to 193,000 in March. That is a mere six months supply.

Again, sticker shock has to be at work here. First-time buyers could be having trouble getting into the market, and higher mortgage rates, which are still historically low, make qualifying for a mortgage that much harder.

It is without surprise that the homebuilder stocks have sold off. PulteGroup Inc. (NYSE: PHM) was shown by CNBC to have raised its prices by 13%, and Pulte shares were down 1.3% at $18.42 in mid-day trading, after having been down as low as $18.20 this morning.

CNBC also showed that Lennar Corp. (NYSE: LEN) lifted its prices by 17%. Lennar shares were down 1.4% at $37.90, but the stock had traded as low as $37.32 earlier in the morning, after the awful new home sales numbers were released.

iShares U.S. Home Construction ETF (NYSEMKT: ITB) shares were down 1.7% at $23.29 in mid-day trading on Wednesday. Its range has been $20.18 to $26.56 in the past year. Lennar and Pulte each account for nearly 10% of this exchange traded fund’s weighting.

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The reality is that the deals in home buying have come and gone. Prices are back up to sky-high levels in many markets. Now just imagine what will happen to new home sales if the 10-year Treasury and 30-year Treasury yields rise another 100 basis points or more, as some economists have expected in the year ahead.