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New Home Sales and Charts- Is The Housing Industry on the Brink?

New Home Sales- Click to enlarge

New home sales for July were reported at a seasonally adjusted annual rate of 412,000.  The consensus expectation of Wall Street economists had been for a rate of  427,000.  The media put a downbeat face on that news, reporting that new home sales were unexpectedly down in July, falling 2.4%.

Actual unit sales in July as surveyed totaled 37,000. That compared with 33,000 in July 2013 for a year over year gain of 12.1%. That reversed a year and a half long decline in sales momentum that had actually turned negative earlier this year, with the year to year decline exceeding -9% in April.

From June to July, sales dropped by 3,000 units or 7.5%. That performance was far stronger than the June-July 2013 sales decline of 23%. It wasn’t materially different than the average July decline of -6.8% over the past 10 years, including the years in which the market collapsed.

Overall this was not as bad a performance as the headlines suggested. None of the media reports indicated that July’s data showed a reversal of downward sales momentum. However, keeping things in perspective, current sales are only at a rate of about one third of the levels seen at the top of the housing bubble and about half the rate seen in the 1992-2002 decade before the housing bubble took off. This remains a perilously weak market. The gains of the past couple of years have been meagre in a historical context.

Below are several charts showing the latest actual, not seasonally adjusted data on new home sales, along with related series and a few questions. I’ll let you fill in the blanks.

First, did new home sales in July really arrest the downward momentum of the past year or was the upward blip merely a reaction to sharply lower mortgage rates in July, which will prove temporary? Will sales ever get past a level equivalent to about 1/3 of the sales at the top of the bubble? Which is normal, then, now, or neither?

New Home Sales- Click to enlarge
New Home Sales- Click to enlarge

Are new home sales a leading indicator of job growth? Does the failure to make a new high in sales for this “recovery” suggest that the economy has peaked?

New Home Sales and Jobs- Click to enlarge
New Home Sales and Jobs- Click to enlarge

Single family housing starts always exceed sales due to custom builds. At the top of the bubble in 2006 the July start/sales ratio was 1.6. Today it’s around 1.68. That’s below last years July level of approximately 1.73, but still well above the norms of 1995 to 2006. Are builders overbuilding again? Will this lead to another retrenchment?

Single Family Housing Starts to Sales- Click to enlarge
Single Family Housing Starts to Sales- Click to enlarge

Most of the price increases of new homes of the past 3 years have been due to increasing square footage. Price increases of new homes are now moderating. Did we just experience a bubble in house sizes? How big is too big? Are US home builders repeating the past error of US automakers making the product bigger to boost profits forcing potential buyers shift to smaller, more efficient and convenient rentals?

The nominal year to year gain in median sale prices stood at 2.9% in July. Price increases have slowed in 2014 from the bubble like increases of mid 2012-2013 as affordability becomes an issue. A rise in mortgage rates could virtually shut down the Us single family housing construction industry which is already fragile and potentially overbuilt in both size and number.

New Home Prices- Click to enlarge
New Home Prices- Click to enlarge

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1 Comment

  1. yatesm08

    Good article, but I stopped believing a word out of official govt stat organizations long ago. Not even sure I believe real estate stats either, even though they’re not as rosy. I suspect things are far, far worse than we’re told.

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