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Tuesday, March 24, 2020

A few Comments on February New Home Sales

by Calculated Risk on 3/24/2020 11:12:00 AM

New home sales for February were reported at 765,000 on a seasonally adjusted annual rate basis (SAAR). Sales for the previous three months were revised up, and sales in January were revised up to a new cycle high of 800,000 - the highest sales rate since May 2007.

Earlier: New Home Sales at 765,000 Annual Rate in February.

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).

New home sales were up 14.3% Year-over-year (YoY) in February.   The comparisons are easy over the first five months of the year, but sales will probably be down YoY for the next several months - at least - due to COVID-19.

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 February 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.

Now the gap is mostly closed.   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.

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.

Over the next several months, both new and existing home sales will be negatively impacted by COVID-19.