New home mirage

We're looking for good news (or at least less bad news) wherever we can find it, so this morning's better-than-expected jump in new home sales for October got lots of notice. Not only were sales up but prices fell by the smallest margin in nearly a year. Yaaay!! But like a lot of economic indicators these days, it's helpful to examine the fine print. From the WSJ's Developments blog:

First, consider the comps. Builders have been in a downward spiral for some time, so even a modest uptick looks stellar. The number of new homes that sold in October is a seasonally-adjusted 430,000, up from 405,000 a month earlier. Do the math: It's a small increase, and one well-below the once high-flying market's roughly 1.4 million sales reported in July of 2005. A small number, with a whopping 17.6% margin of error, points out Credit Suisse analyst Dan Oppenheim. "We would not be surprised to see either a downward revision next month or a steep drop in November sales."

Another not-so-promising stat: The South was responsible for much of the sales action, with the Pacific region actually falling by 5 percent. Also, the $8,000 tax credit for first-time homebuyers had been set to expire on Nov. 30 and was probably motivating a bunch of folks (the credit has since been extended). Now that we're into November - normally a sluggish home-buying time in the best of economies - look for the numbers to fall.

"At the risk of sounding overly skeptical we're hesitant to believe that October saw the strongest sales pace yet this year, as most builders we've spoken with have sounded fairly dour about October (and morose when discussing November)," writes Mr. Oppenheim.

L.A.-based KB Home was up a touch at the closing bell, but down from its earlier high. Ryland and Standard Pacific, two other CA-based homebuilders, were actually down at last check.