by Bill McBride on 9/27/2007 11:03:00 AM
Thursday, September 27, 2007
For more graphs, please see my earlier post: August New Home Sales
Click on graph for larger image.
The first graph shows New Home Sales vs. Recession for the last 35 years. New Home sales were falling prior to every recession, with the exception of the business investment led recession of 2001. This should raise concerns about a possible consumer led recession - possibly starting right now!
The second graph compares annual New Home Sales vs. Not Seasonally Adjusted (NSA) New Home Sales through August.
Typically, for an average year, about 70% of all new home sales happen before the end of August. Therefore the scale on the right is set to 70% of the left scale.
It now looks like New Home sales will be in the low 800s - the lowest level since 1997 (805K in '97). My forecast was for 830 to 850 thousand units in 2007 and that might be a little too high.
A comment on revisions:
The Census Bureau revises the New Home sales number three times (plus annual revisions). During a housing down turn, most of the revisions from the Census Bureau are down. This is important to keep in mind when looking at a new monthly report.
This chart shows the cumulative revisions for each month since sales activity peaked in July 2005 (annual revisions are not shown). The last time there was a positive cumulative revision (red column) was in September 2005.
The median change for the first revision is a decline of 1.6% (average decline of 1.8%) over the last two years.
The cumulative median change for the second revision is a decline of 3.6%.
The cumulative median change for the third revision is a decline of 4.8%. Since the last upward cumulative revision (Sept 2005), the range has been from a small decline of 0.2% in Dec '05, to a decline of almost 11% for May '06.
The new homes sales number today will probably be revised down too. Applying the median cumulative revision (4.8%) during this downtrend suggests a final revised Seasonally Adjusted Annual Rate (SAAR) sales number of 757 thousand for August (was reported as 795 thousand SAAR by the Census Bureau). Just something to remember when looking at the data.