Tuesday, June 23, 2015

Comments on New Home Sales and Prices

by Bill McBride on 6/23/2015 11:59:00 AM

The new home sales report for May was solid, with sales above expectations at 546 thousand on a seasonally adjusted annual rate basis (SAAR), and upward revisions to prior months.

Earlier: New Home Sales increased to 546,000 Annual Rate in May

The Census Bureau reported that new home sales this year, through May, were 233,000, not seasonally adjusted (NSA). That is up 24.0% from 188,000 during the same period of 2014 (NSA). That is a strong year-over-year gain for the first five months!

Sales were up 19.5% year-over-year in May.

New Home Sales 2013 2014Click on graph for larger image.

This graph shows new home sales for 2014 and 2015 by month (Seasonally Adjusted Annual Rate).

The year-over-year gain will probably be strong through July (the first seven months were especially weak in 2014), however I expect the year-over-year increases to slow later this year - but the overall year-over-year gain should be solid in 2015.

Also, as part of the new home sales report, the Census Bureau reported the number of homes sold by price and the average and median prices.

From the Census Bureau: "The median sales price of new houses sold in May 2015 was $282,800; the average sales price was $337,000."

The following graph shows the median and average new home prices.

New Home PricesClick on graph for larger image.

During the housing bust, the builders had to build smaller and less expensive homes to compete with all the distressed sales.  When housing started to recovery - with limited finished lots in recovering areas - builders moved to higher price points to maximize profits.

The average price in May 2015 was $337,000 and the median price was $282,800.  Both are above the bubble high (this is due to both a change in mix and rising prices), but are below the recent peak. The recent decline in the median and average is probably because some builders have introduced new homes at lower price points.

The third graph shows the percent of new homes sold by price.

New Home Sales by PriceAbout 8% of homes sold were under $150K in May 2015.  This is down from 30% in 2002 - but up a little from earlier this year.  The under $150K new home is probably going away.

There has also been some pickup in homes sold in the $150K to $300K range.

And here is another update to the "distressing gap" graph that I first started posting a number of 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 GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through May 2015. 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.

I expect existing home sales to move sideways (distressed sales will continue to decline and be partially offset by more conventional / equity sales).  And I expect this gap to slowly close, mostly from an increase in new home sales.

Distressing GapAnother way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down, and this ratio will probably continue to trend down over the next several years.

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.