Friday, December 23, 2016

A few Comments on November New Home Sales

by Bill McBride on 12/23/2016 11:41:00 AM

New home sales for November were reported at 592,000 on a seasonally adjusted annual rate basis (SAAR).  This was above the consensus forecast, however the previous months combined were revised down slightly.

Sales were up 16.5% year-over-year in November, and this is the best month for November (NSA) since 2007. And sales are up 12.7% year-to-date compared to the same period in 2015.

This is very solid year-over-year growth.

Note that these sales (for November) mostly happened while mortgage rates were increasing (but still below the current level).  So far the increase in rates hasn't impacted sales, but we need to wait a few months to see the impact.

Earlier: New Home Sales increase to 592,000 Annual Rate in November.

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 12.7% year-over-year, because of very strong year-over-year growth over the last seven 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.   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 November 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.