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November 2012 New Home Sales Improve

Written by and Steven Hansen

New home sales data for November 2012 was good, and better than last month’s data.

  • 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”);
  • The trend lines for this sector are now flat (the rate of growth is now constant for much of 2012).

Econintersect Analysis:

  • sales up 1.4% month-over-month
  • year-over-year sales up 17.4%.

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.

US Census Headlines:

  • sales up 4.4% month-over-month
  • year-over-year sales up 15.3%
  • market expected annualized sales of 379K to 390K (actual was 377K – seasonally adjusted)

The quantity of new single family homes for sale is now well below historical levels.

Seasonally Adjusted New Homes for Sale

As the sales data is noisy (large monthly variations). The graph below shows the deterioration in the growth trend line from upward to flat.

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 November 2012 were at a seasonally adjusted annual rate of 377,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.4 percent (±16.8%)* above the revised October rate of 361,000 and is 15.3 percent (±18.7%)* above the November 2011 estimate of 327,000.

Unadjusted New Home Sales Monthly Volumes In Thousands

The median sales price of new houses sold in November 2012 was $246,200; the average sales price was $299,700..

Unadjusted Median New Home Sales Price

The seasonally adjusted estimate of new houses for sale at the end of November was 149,000.  This represents a supply of 4.7 months at the current sales rate.

Seasonally Adjusted – Number of Months of Supply of New Homes at Current Rate of Sales

The unsold supply of new homes has returned to pre-crisis levels.

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.

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2 Responses to November 2012 New Home Sales Improve

  1. rdmill says:

    Gentlemen–it would appeary that the fate of housing as well as the stock market and the economy in general is, regrettably, in the hands of a fractious,incompetent congress and a President who lacks command and control abilities–he is clearly no Bill Clinton, Reagan, etc. The resolution of the Political Cliff–whether on Dec 31 or sometime in January surely means higher taxes on everyone–directly and/or indirectly and at least a modest reduction in spending over the next years. This is bound to have some depressive effects on housing. The Housing stocks started 2012 with a bang, sold off in the summer then came roaring back with the Bernanke QE III, or IV ( i forgot, shame on me!). So Fiscal and Monetary policy are Mars and Venus, not in harmony. Bernanke is gone in 2014. Terror and panic may temporarily grip the markets. What is your best “guess” on how this effects housing? I assume that the low end and bargains will continue to sell well. s to housing starts, that is another matter. Robert Millman

    • @rdmill , the estimates of the effects of the fiscal cliff go all over the map.  i tend to side with the CBO which believes the effect is a half a percent off of GDP. consider:
      - the bush era tax cuts had no effect on increasing an already robust housing market.  so would a tax increase slow down the market?
      - i keep asking how much an already depressed housing market can contract.  the dynamic in play is expansion.  of course, a tax increase is a negative to any kind of spending – but is it a bigger negative than the positive dynamic.
       
      i only asked more questions as i am a trends and hard numbers analyst.  My guess (which i believe is as good as anyone elses) is that the immediate effect of the cliff will be a consumer slowdown – and once the consumer realizes the world did not end – most everything will return to the old trend lines.