Tuesday, July 26, 2016

A few Comments on June New Home Sales

by Bill McBride on 7/26/2016 11:52:00 AM

The new home sales report for June was strong at 592,000 on a seasonally adjusted annual rate basis (SAAR) - the highest since early 2008 - and combined sales for March, April and May were revised up by 22 thousand SAAR.

Sales were up 25.4% year-over-year (YoY) compared to June 2015. And sales are up 10.1% year-to-date compared to the same period in 2015.

Earlier: New Home Sales increased to 592,000 Annual Rate in June, Highest since 2008.


New Home Sales 2015 2016Click on graph for larger image.

This graph shows new home sales for 2015 and 2016 by month (Seasonally Adjusted Annual Rate).  Sales to date are up 10.1% year-over-year, mostly because of the solid growth in Q2.

There will probably be solid year-over-year growth in Q3 this year too.

Overall  I expected lower growth this year, in the 4% to 8% range.  Slower growth seemed likely this year because Houston (and other oil producing areas) will have a problem this year.

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 June 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.