Wednesday, July 25, 2018

A few Comments on June New Home Sales

by Bill McBride on 7/25/2018 12:34:00 PM

New home sales for June were reported at 631,000 on a seasonally adjusted annual rate basis (SAAR). This was below the consensus forecast, and the three previous months, combined, were revised down.

Sales in June were up 2.4% year-over-year compared to June 2017.   This was weak YoY growth, especially since was a fairly easy comparison since new home sales were soft in mid-year 2017.

There have been several articles recently about a weaker housing market (see: Has the Housing Market Peaked? (Part 2)).  However I expect new home sales and single family starts will increase further over the next couple of years.

If new home sales weaken further this year, I'd be a more concerned.  But so far, the growth in new home sales in 2018 is about what I expected.

Earlier: New Home Sales decrease to 631,000 Annual Rate in June.

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 are up 6.9% through June compared to the same period in 2017. Decent growth so far, and the next two months will be an easy comparison to 2017.

This is on track to be close to my forecast for 2018 of 650 thousand new home sales for the year; an increase of about 6% over 2017.   There are downside risks to that forecast, such as higher mortgage rates, higher costs (labor and material), and possible policy errors.

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 June 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.