Friday, December 28, 2007

More on New Home Sales

by Calculated Risk on 12/28/2007 11:01:00 AM

First, a couple of key points to consider on housing.

Note: For more graphs, please see my earlier post: November New Home Sales

Let's start with revisions. This month (November) is one of the few months were the initial report wasn't higher than the previous month. Usually the small reported gain in sales is then revised away in subsequent releases.

Look at the report today (for November), the Census Bureau revised down sales for August, September and October. This has been the pattern for most of the housing bust; almost all the revisions have been down. I believe the Census Bureau is doing a good job, but the users of the data need to understand what is happening (during down trends, the Census Bureau initially overestimates sales).

For an analysis on Census Bureau revisions, see the bottom of this post.

Next up, inventory. The Census Bureau reported that inventory was 505 thousand units. But this excludes the impact of cancellations. Currently the inventory of new homes is understated by about 100K (See this post for an analysis of the impact of cancellations on inventory).

This also means that the months of supply is understated. The Census Bureau reported the months of supply as 9.3 months. After adjusting for the impact of cancellations, the actual months of supply is probably closer to 11.3 months.

New Home Sales and RecessionsClick on graph for larger image.

This graph shows New Home Sales vs. Recession for the last 35 years. New Home sales were falling prior to every recession, with the exception of the business investment led recession of 2001.

This is what we call Cliff Diving!

And this shows why so many economists are concerned about a possible consumer led recession - possibly starting right now.

The second graph compares annual New Home Sales vs. Not Seasonally Adjusted (NSA) New Home Sales through November.

New Home Sales
Typically, for an average year, about 93% of all new home sales happen before the end of November. Therefore the scale on the right is set to 93% of the left scale.

Through November, there have been 732 thousand New Home sales, and, with one month to go (and a few revisions) it looks like New Home sales for 2007 will be around 775 thousand - the lowest level since 1996 (758K in '96).