Monday, February 26, 2018

A few Comments on January New Home Sales

by Bill McBride on 2/26/2018 01:25:00 PM

New home sales for January were reported at 593,000 on a seasonally adjusted annual rate basis (SAAR). This was below the consensus forecast, however the three previous months were revised up.

I wouldn't read too much into one month of sales, especially in January. January is usually one of the weakest months of the year for new home sales, on a not seasonally adjusted (NSA) basis - and poor weather this year might have impacted sales a little more than usual. I'd like to see data for February and March before blaming higher interest rates, or a negative impact from the new tax law, as the cause of slower sales.

Earlier: New Home Sales decrease to 593,000 Annual Rate in January.

New Home Sales 2016 2017Click on graph for larger image.

This graph shows new home sales for 2017 and 2018 by month (Seasonally Adjusted Annual Rate).

Sales were down 1% year-over-year in January. No worries - yet!

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 January 2018. 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.

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.