Wednesday, February 26, 2020

A few Comments on January New Home Sales

by Calculated Risk on 2/26/2020 11:08:00 AM

New home sales for January were reported at 764,000 on a seasonally adjusted annual rate basis (SAAR). Sales for the previous three months were revised up, combined.

This was the highest sales rate since July 2007.

Earlier: New Home Sales increase to 764,000 Annual Rate in January.

New Home Sales 2018 2019Click on graph for larger image.

This graph shows new home sales for 2019 and 2020 by month (Seasonally Adjusted Annual Rate).

The year-over-year comparison are fairly easy in the first half of 2020, and sales were up 18.6% YoY in January.

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 January 2020. 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.

Ratio Existing to New Home SalesAnother 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.