CHICAGO, Feb. 25, 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 Thursday's Analyst Blog:
New Home Sales Dismal
New Home Sales in January fell by 12.6% from December, to a dismal rate of 284,000. Relative to a year ago, sales are down 18.6%. The December rate was revised down to 325,000 from 329,000. Thus relative to where we thought we were, it could be seen as a 13.7% decline.
The level was substantially worse than the expected rate of 310,000. The nine lowest months on record (back to 1963) for New Home Sales, have all been in the last nine months. 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 79.5%. 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.
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), 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.
In terms of employment, it is not just all the roofers and framers that 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.
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