Monday, April 25, 2016

Comments on March New Home Sales

by Bill McBride on 4/25/2016 12:29:00 PM

The new home sales report for March was eleven thousand below expectations at 511,000 on a seasonally adjusted annual rate basis (SAAR), however combined sales for December, January and February were revised up by 23 thousand SAAR - so overall this was a decent report.

Sales were up 5.4% year-over-year (YoY) compared to March 2015. And sales are up 1.3% year-to-date compared to the same period in 2015.

Earlier: New Home Sales decreased to 511,000 Annual Rate in March.


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).

So far 2016 is barely ahead of 2015, although the comparisons for the first two months were difficult.   The comparisons through the summer will be easier.  Overall  I expect lower growth this year, probably in the 4% to 8% range.

Slower growth is likely this year because 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 March 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.