Friday, May 23, 2014

Comments on the New Home Sales report

by Bill McBride on 5/23/2014 12:03:00 PM

The Census Bureau reported that new home sales this year, through April, were 148,000, Not seasonally adjusted (NSA). That is down 2.6% from 152,000 during the same four months in 2013 (NSA).

This disappointing start to the year is probably mostly due to higher mortgage rates and higher prices. Mortgage rates were at 3.45% in April 2013 and increased to 4.34% in April 2014.  Also there were probably supply constraints in some areas and credit remains difficult for many potential borrowers.

Note: There was a sharp increase in sales in the Midwest region in April, and that appears to be a bounce back from the severe weather.   In the Midwest, sales during the first four months are now essentially flat with the same period in 2013.

Maybe sales will move sideways for a little longer, but remember early 2013 was a difficult comparison period. Annual sales in 2013 were up 16.3% from 2012, but sales in the first four months of 2013 were up 26% from the same period in 2012!

New Home Sales 2013 2014Click on graph for larger image.

This graph shows new home sales for 2013 and 2014 by month (Seasonally Adjusted Annual Rate).

The comparisons to last year will be a little easier in a few months - especially in Q3 - and I still expect to see solid year-over-year growth later this year.

And here is another update to the "distressing gap" graph that I first started posting several 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 GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through April 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.

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 slowly 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.