Wednesday, March 23, 2016

Comments on February New Home Sales

by Bill McBride on 3/23/2016 03:20:00 PM

The new home sales report for February was slightly above expectations at 512,000 on a seasonally adjusted annual rate basis (SAAR), and combined sales for November, December and January were revised up.

Sales were down 6.1% year-over-year (YoY) compared to February 2015.   However, we have to remember February 2015 was the strongest month of 2015 at 545,000  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 comparisons have been difficult so far.

Earlier: New Home Sales increased to 512,000 Annual Rate in February.

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 for the first two months was difficult.  I also expect lower growth this year overall.

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 several years.

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through February 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. If not, then the gap will persist.

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.