Tuesday, November 26, 2019

A few Comments on October New Home Sales

by Calculated Risk on 11/26/2019 12:26:00 PM

New home sales for October were reported at 733,000 on a seasonally adjusted annual rate basis (SAAR). Sales for the previous three months were revised up, combined. And sales for September were revised up to a new cycle high of 738,000 SAAR.

Sales were above 700 thousand SAAR in four of the last five months - the best five month stretch since 2007.

Annual sales in 2019 should be the best year for new home sales since 2007.

Earlier: New Home Sales at 733,000 Annual Rate in October, New Cycle High in September.

New Home Sales 2017 2018Click on graph for larger image.

This graph shows new home sales for 2018 and 2019 by month (Seasonally Adjusted Annual Rate).

Sales in October were up 31.6% year-over-year compared to October 2018.

Year-to-date (through October), sales are up 9.6% compared to the same period in 2018.

The comparisons for the last two months are easy, so sales should be double digits in 2019 compared to 2018 - a solid year for new home sales.

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.

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through October 2019. 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.

Even though distressed sales are down significantly, following the bust, new home builders focused on more expensive homes - so the gap closed slowly.

Now the gap is mostly closed, and I expect it to close a little more.   However, this assumes that the builders will offer some smaller, less expensive homes.

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 since the housing bust - and is getting close to the historical ratio - and I expect this ratio will trend down a little more.

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.