The pundits are saying this data is bad. Well the data is not good but one can only guess if it really is bad in the big picture as:
- New home sales is a noisy index making month-over-month comparisons problematic.
- New home sales are growing at double digits year-over-year;
- This sector is still clearly in recovery (it has a long way to go to be “in expansion”);
- We have been warning that the rate of growth has been softening in the last months.
Let us start with perspective – new home sales are less than 1/4 of the peak values seen in 2005 – and are running at levels last seen in the 1970’s (non seasonally adjusted data). But still, since mid-2011 new home sales have been growing year-over-year.
- sales down 8.4% month-over-month
- year-over-year sales up 15.1%
- market expected annualized sales of 373k to 375K (actual was 350K – seasonally adjusted)
- sales down 10.7% month-over-month
- year-over-year sales up 17.9% (3 month average up 19.8%).
Seasonally Adjusted New Homes for Sale
As the data is noisy (large monthly variations). This graph suggests that new home sales volumes have bottomed (and are now growing) over the last nine months.
Year-over-Year Change – Unadjusted New Home Sales Volumes (blue line) with zero growth line emphasized (red line)
The headlines of the data release:
Sales of new single-family houses in June 2012 were at a seasonally adjusted annual rate of 350,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.4 percent (±12.4%)* below the revised May rate of 382,000, but is 15.1 percent (±16.7%)* above the June 2011 estimate of 304,000.
Unadjusted New Home Sales Monthly Volumes In Thousands
The median sales price of new houses sold in June 2012 was $232,600; the average sales price was $273,900. The seasonally adjusted estimate of new houses for sale at the end of June was 144,000. This represents a supply of 4.9 months at the current sales rate.
Unadjusted Medium New Home Sales Price
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).
With new home sales at 25% of past rates, whatever your interpretation of the new home sales data is not significant enough to matter. Also the data is distorted by the first home buyer’s stimulus which required contract signing before 30 April 2010 – causing a data bubble and subsequent trough. In spite of Econintersect‘s reservations about the efficacy of seasonal adjustment at the present time, it is interesting to look at the deep history of the seasonally adjusted data.
The broad bottoming process for new home sales in 2010 may not be confirmed or denied for another year or more. The critical factor will be whether the one-year positive trend can continue as year-over-year comparisons will no longer be against the very low sales after the collapse of the tax credit stimulus micro-bubble.
The seasonally adjusted new home sales rate is the lowest it has been for 50 years and has been at that level for almost two years. At the beginning of 1963 the U.S. population was around 188 million. With annual new home sales averaging around 550,000 per year in 1963, the extreme depression in the new home market is evident. In 1963 the rate of new home sales was about 290,000 per 100 million of population. In 2011 the number is about 100,000 per 100 million.
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.