posted on 26 July 2016
The headlines say new home sales improved from last month's drastically upwardly revised numbers. The rolling averages smooth out much of the uneven data produced in this series - but even rolling averages cannot help if the data series is significantly revised.
This data series is suffering from methodology issues. Econintersect analysis:
Unadjusted Year-over-Year Rate of Growth - Sales (blue line) and 3 mo4.nth rolling average of Sales (red line)
last month's chart
this months chart after backward revision
The quantity of new single family homes for sale remains well below historical levels.
Seasonally Adjusted New Homes for Sale
As the sales data is noisy (large monthly variations).
Year-over-Year Change - Unadjusted New Home Sales Volumes (blue line) with zero growth line emphasized
The headlines of the data release:
Unadjusted New Home Sales Monthly Volumes In Thousands
Unadjusted Median New Home Sales Price
Seasonally Adjusted - Number of Months of Supply of New Homes at Current Rate of Sales
Caveats on Use of New Home Sales Data
This data is compiled by sampling, and historically has little revision. This data is based on contracts signed - not actual properties conveyed.
As in most US Census reports, Econintersect does not agree with the seasonal adjustment methodology used and provides an alternate analysis. The issue is that the exceptionally large recession and subsequent economic roller coaster has caused data distortions that become exaggerated when the seasonal adjustment methodology uses several years of data. Further, Econintersect believes there may be a New Normal seasonality and using data prior to the end of the recession for seasonal analysis could provide the wrong conclusion.
Econintersect determines the month-over-month change by subtracting the current month's year-over-year change from the previous month's year-over-year change. This is the best of the bad options available to determine month-over-month trends - as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).
It is more informative to look at these changes over the nearly fifty-year history. The following graph shows new home sales normalized to population from from St, Louis Fed:
Seasonally Adjusted New Home Sales Ratio to Population
The same data is plotted below to include the average for the entire period and two moving averages (graph updated through October 2011):
The bottom line is that the new home market is in an extreme depression and the apparent bottoming process has been dragging on for two years, if in fact the bottom has been reached. Recent review of the Fed 2011 stress tests for banks has a new recession scenario that would see home prices decline another 20% from here. It is unlikely that the attempts to complete a bottom here could hold under those conditions. Econintersect analysis of recession indicators is still not seeing the start of new U.S. recession, however. We can only hope that outlook continues.
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