Tuesday, December 24, 2013

Comments on New Home Sales

by Bill McBride on 12/24/2013 11:53:00 AM

Earlier: New Home Sales at 464,000 Annual Rate in November

Looking at the first eleven months of 2013, there has been a significant increase in new home sales this year.  The Census Bureau reported that there were 401 new homes sold during the first eleven months of 2013, up 17.6% from the 341 thousand sold during the same period in 2012.  That follows an annual increase of 20% in 2012.

This puts new home sales on pace for about 433 thousand in 2013.  But even though there has been a large increase in the sales rate, sales are close to the lows for previous recessions.  Right now it looks like 2013 will be the sixth worst year for new home sales since 1963.

The sales rate was only lower than 2013 in the worst housing bust years of 2009 through 2012, and the worst year of early '80s recession (1982).

Worst Years for New Home Sales since 1963
RankYearNew Home Sales (000s)
12011306
22010323
32012368
42009375
51982412
62013***433
71981436
81969448
91966461
101970485
112008485
*** Estimate for 2013

This suggests significant upside over the next several years. Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years - substantially higher than the current 464 thousand sales rate.  So I expect the recovery to continue.

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 close over the next few years.

Distressing GapClick on graph for larger image.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through November 2013. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

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 expect existing home sales to decline some (distressed sales will slowly decline and be partially offset by more conventional sales).  And I expect this gap to continue 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.

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