Tuesday, September 26, 2017

A few Comments on August New Home Sales

by Bill McBride on 9/26/2017 11:30:00 AM

New home sales for August were reported at 560,000 on a seasonally adjusted annual rate basis (SAAR). This was below the consensus forecast, and the three previous months combined were revised down.  However there was probably some negative impact from hurricane Harvey (not clear the size of the impact).

Sales were down 1.2% year-over-year in August.

Earlier: New Home Sales decrease to 560,000 Annual Rate in August.

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

This graph shows new home sales for 2016 and 2017 by month (Seasonally Adjusted Annual Rate).  Sales were down 1.2% year-over-year in August.

For the first eight months of 2017, new home sales are up 7.5% compared to the same period in 2016.

This was a solid year-over-year increase through August.

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 August 2017. 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.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

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 since the housing bust, 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.