This data line needs serious context to make sense.
Today new home sales beat estimates, and new home median sales prices hit an all-time high. What is going on here? My job is always to be the detective, not the troll so let’s take a look at today’s data, as there is a constant theme here that I have talked about for some time. Hopefully, I can make sense of this report, which showed the home sales beat estimates with prices still at all-time highs.
From Census: New Home Sales Sales of new single-family houses in October 2022 were at a seasonally adjusted annual rate of 632,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.5 percent (±20.8 percent)* above the revised September rate of 588,000, but is 5.8 percent (±19.6 percent)* below the October 2021 estimate of 671,000
New home sales haven’t gone anywhere for a few months now, and this report also had negative revisions to the prior reports. The cancellation rates are rising, this is true, but the Census reports don’t properly account for those sales being lost. In theory, the sales levels are lower than the data will show.
Also, these reports are very wild month to month, so we can get a swing back lower in next month’s report. However, with all that said, new home sales are historically low today and have been for some time. We are well below the 2000 recession level and back to 1996 levels.
When you account for a population of over 330 million people, that sales number looks a lot lower than in 2000 and 1996 so be mindful that we are trending at low levels today.
While the actual sales trends can be more downward than the report shows, it’s not off by a significant amount. We are, for now, bouncing off the bottom that we had back in 2018, which was historically low as well.
In 2005, when the housing bubble peaked in sales at around 1.4 million, we had a clear, aggressive downtrend in sales with cancellation rates rising aggressively. Today we are finding a low base for now, because new home sales are historically low.
I would be careful reading too much into this report or even the current trend. The housing market has been in a recession since June of this year, and we have other data lines that can be more useful in gauging the new home sales sector.
From Census: For Sale Inventory and Months’ Supply The seasonally adjusted estimate of new houses for sale at the end of October was 470,000. This represents a supply of 8.9 months at the current sales rate.
My rule of thumb for anticipating builder behavior is based on the three-month supply average. This also has nothing to do with the existing home sales market; this monthly supply data is only for the new home sales market.
When supply is 4.3 months, and below, this is an excellent market for builders.
When supply is 4.4 to 6.4 months, this is an OK market for the builders. They will build as long as new home sales are growing.
The builders will pull back on construction when the supply is 6.5 months and above.
Read the full article on Housing Wire.
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