Thursday, September 24, 2015

Comments on August New Home Sales

by Bill McBride on 9/24/2015 11:59:00 AM

The new home sales report for August was above expectations and sales were at the highest level since early 2008.  New home sales are important for jobs and the economy, and the solid increase in sales this year is a positive sign.

Earlier: New Home Sales increased to 552,000 Annual Rate in August.

The Census Bureau reported that new home sales this year, through August, were 359,000, not seasonally adjusted (NSA). That is up 21.1% from 297,000 sales during the same period of 2014 (NSA). That is a strong year-over-year gain for the first eight months of 2015!

Sales were up 21.6% year-over-year in August.

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 was strong through August, however I expect the year-over-year increases to slow over the remaining months - but the overall year-over-year gain should be solid in 2015.

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 August 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.

However, this assumes that the builders will offer some smaller, less expensive homes.

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.