Wednesday, February 24, 2016

Comments on January New Home Sales

by Bill McBride on 2/24/2016 01:48:00 PM

The new home sales report for January was below expectations at 494,000 on a seasonally adjusted annual rate basis (SAAR), however combined sales for October, November and December were revised up.

Sales were down 5.2% year-over-year (YoY) compared to January 2015.   However, we have to remember January 2015 was a pretty strong month at 521,000  SAAR.  Sales for all of 2015 were 501,000 (up 14.5% from 2014) - and since January (and February) were especially strong months last year, the YoY comparison is difficult.

Earlier: New Home Sales decreased to 494,000 Annual Rate in January.


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

This graph shows new home sales for 2015 and 2016 by month (Seasonally Adjusted Annual Rate).

The comparisons in early 2016 are difficult.  And I also expect lower growth this year.

Houston (and other oil producing areas) will have a problem this year. Inventory of existing homes is increasing quickly and prices will probably decline in those areas. And that means new home construction will slow in those areas too.

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 January 2016. This graph starts in 1994, but the relationship had 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 more sideways, 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.

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.