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Tuesday, March 25, 2014

A comment on the New Home Sales report

by Calculated Risk on 3/25/2014 11:56:00 AM

Earlier: New Home Sales at 440,000 Annual Rate in February

The Census Bureau reported that new home sales in January and February combined were 68,000 not seasonally adjusted (NSA). This is the same as last year NSA - so there was no growth over the first two months of the year.

Weather probably played a small role in the lack of growth, but higher mortgage rates and higher prices probably were probably bigger factors.

Also this was a difficult comparison period. Sales in 2013 were up 16.8% from 2012, but sales in January and February 2013 were up over 28% from the same months of the previous year! The comparisons to last year will be easier in a few months - and I expect to see solid growth again this year.

On revisions: Although sales in January were revised down by 13 thousand, sales in November and December were revised up a combined 18 thousand - so overall revisions were positive.

Note: Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years - substantially higher than the 440 thousand sales rate in February.   So I expect the housing recovery to continue.

And here is another update to the "distressing gap" graph that I first started posting over four years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

Distressing GapClick on graph for larger image.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through February 2014. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. The flood of distressed sales kept existing home sales elevated, and depressed new home sales since builders weren't able to compete with the low prices of all the foreclosed properties.

I expect existing home sales to decline some more or move sideways (distressed sales will slowly decline and be partially offset by more conventional / equity sales).  And I expect this gap to close, mostly from an increase in new home sales.

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.