Wednesday, September 24, 2014

Comments on New Home Sales

by Calculated Risk on 9/24/2014 01:59:00 PM

The new home sales report for August was above expectations at 504 thousand on a seasonally adjusted annual rate basis (SAAR).  This was the highest sales rate since May 2008.  However, we need to remember this was just one month of data.

Also sales for the previous three months were revised up a combined 16,000 sales SAAR.

The Census Bureau reported that new home sales this year, through August, were 307,000, Not seasonally adjusted (NSA). That is up 2.7% from 299,000 during the same period of 2013 (NSA). Not much of a gain from last year.  Right now it looks like sales will barely be up this year (maybe 3% or so for the year).

Sales were up 33.0% year-over-year in August - however sales declined sharply in Q3 2013 as mortgage rates increased - so this was an easy comparison.  The comparison for September will be pretty easy too.

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 are easy right now, and I expect to see year-over-year growth for the 2nd half of 2014.

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 June 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 or move sideways (distressed sales will continue to 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.

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, 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.