Friday, January 25, 2013

New Home Sales and Distressing Gap

by Bill McBride on 1/25/2013 11:58:00 AM

The Census Bureau reported a month-to-month decline in new home sales in December, but sales for the three previous months were revised up - so 2012 annual sales were at the expected level of 367 thousand (before further revisions).  This was an increase of 19.9% from 2011.

Note: I also expect sales for December will be revised up (almost all the recent revisions have been up).

This table shows the annual sales rate for the last eight years.

Annual New Home Sales
YearSales (000s)Change in Sales
20051,2836.7%
20061,051-18.1%
2007776-26.2%
2008485-37.5%
2009375-22.7%
2010323-13.9%
2011306-5.3%
201236719.9%

Even with the sharp increase in sales, 2012 was the third lowest year for new home sales since the Census Bureau started tracking sales in 1963. The two lowest years were 2010 and 2011.

Note: For 2013, estimates are sales will increase to around 450 to 460 thousand, or another 22% to 25% on an annual basis.

My guess is sales will rise to around 800 thousand per year in a few years, but others think the next peak may be lower, perhaps closer to 700 thousand.  I think the demographics support close to 800 thousand per year, but even if sales only rise to the average of 664 thousand for the '80s and '90s, sales would still increase over 80% from the 2012 level.

And here is another update to the "distressing gap" graph that I first started posting over four years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to start to close over the next few years.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through December. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Distressing GapClick on graph for larger image.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. The flood of distressed sales kept existing home sales elevated, and depressed new home sales since builders weren't able to compete with the low prices of all the foreclosed properties.

I don't expect much of an increase in existing home sales (distressed sales will slowly decline and be offset by more conventional sales). But I do expect this gap to close - mostly from an increase in new home sales.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

Earlier:
New Home Sales at 369,000 SAAR in December
New Home Sales graphs

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