Wednesday, October 26, 2016

A few Comments on September New Home Sales

by Bill McBride on 10/26/2016 11:23:00 AM

New home sales for September were reported below the consensus forecast at 593,000  on a seasonally adjusted annual rate basis (SAAR). And the three previous months were all revised down significantly.

However, sales were up 29.8% year-over-year in September, and this is the best month for September (NSA) since 2007. And sales are up 13.0% year-to-date compared to the same period in 2015.

The glass is more than half full.  This is very solid year-over-year growth.

Earlier: New Home Sales at 593,000 Annual Rate in September.

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 13.0% year-over-year, because of very strong year-over-year growth over the last six months.

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.   It looks like I was too pessimistic on new home sales 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 September 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.

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.