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September: Worst Plunge Ever in New Home Prices

The Commerce Department reported another miracle on Friday. Or rather a mirage. In September, new home sales edged up 0.2% from August to a seasonally adjusted annual rate of 467,000 units. This isn’t a huge number, compared to the crazy days of Housing Bubble 1, but it was a 6-year high! And the media went gaga over it.

So, new home sales in August were initially reported to have been 504,000. Also a 6-year high or something. But these numbers have elephantine margins of error. Big revisions are common. And on Friday, the Commerce Department chopped that number down to 466,000 – which September beat by a barely visible 1,000 units.

In raw, not-seasonally adjusted numbers, 38,000 new homes were sold in September. That was well above September 2013 but still puny compared to the historical sales range of 40,000 to 80,000 units per month, which soared to over 110,000 per month during Housing Bubble 1 (great multi-decade chart by The Wall Street Examiner).

There was another number in this report, the median price at which new homes sold in September: $259,000. And it’s one heck of an ugly dude.

Normally the median new home price rises from August to September. Over the last 7 years through 2013, it fell only once: in September 2011, it inched down $2,600 from August to $217,000. During the remaining 6 years, median prices rose in September – even in 2008, the year when everything related to home sales was swooning. And last year in September, the median home price jumped $14,500 to $269,800.

So that’s sort of what should have happened this September … some kind of uptick. Even a small one would have done. But no. The median price plummeted 9.4% from August. A one-month trip from $286,000 to $259,000. It crashed $27,000 in one fell swoop.

Here is what that plunge looks like (courtesy of the St. Louis Fed). I called it “one heck of an ugly dude” for a reason:

US-new-homes-median-price-2004_2014-09

That median price of $259,000 was $10,800 below September a year ago. It was the first year-over-year decline since 2011!

Median home prices peaked in June at $287,000 and in August at $286,800. And that peak in prices, dropping sales volume, and rising inventories coagulated into a toxic mix that finally jarred homebuilders into discount mode. And what industry promoters spend their lives telling everyone that it won’t happen, happened again: after nearly three years of wild year-over-year price run-ups, prices suddenly dropped.

That $27,000 plunge is nothing to sneeze at. In dollar terms, it’s the worst month-to-month plunge EVER.

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