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December 2012 New Home Sales Were Not Pretty

Written by John Lounsbury and

New home sales data for December 2012 was definitely worse than last month’s data.

  • December 2012 was the worst year-over-year growth of 2012 – and the only month in 2012 with single digit year-over-year growth;
  • The three month rolling average is now declining.
  • The headline seasonally adjusted numbers say new home sales are down 7.3%, and Econintersect‘s analysis is even worse.

Econintersect Analysis:

  • sales down 17.8% month-over-month
  • year-over-year sales up 8.3%.

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.  The table below is unadjusted data.

Year New Homes Sold
2005 1283
2006 1052
2007 776
2008 485
2009 374
2010 322
2011 305
2012 368

US Census Headlines:

  • sales down 7.3% month-over-month
  • year-over-year sales up 8.8%
  • market expected annualized sales of 360K to 385K (actual was 360K – 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 December 2012 were at a seasonally adjusted annual rate of 369,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.3 percent (±15.3%)* below the revised November rate of 398,000, but is 8.8 percent (±24.8%)* above the December 2011 estimate of 339,000.

Unadjusted New Home Sales Monthly Volumes In Thousands

The median sales price of new houses sold in December 2012 was $248,900; the average sales price was $304,000.

Unadjusted Median New Home Sales Price

The seasonally adjusted estimate of new houses for sale at the end of December was 151,000. This represents a supply of 4.9 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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3 Responses to December 2012 New Home Sales Were Not Pretty

  1. carolynbeeb says:

    well i hope one bad month doesn’t become the norm. one of the contributing factor probably people not able to qualify for loans. After the past years many good folks credit is shot. If you find negative info remove it. Obviously the most important thing you must do is go to a reputable and established credit repair company. I know there are many out there but I think Lexington Law is proabably the best because of how long they have been in business (20 years) and that they get results.

  2. beingalon44 says:

    Yeah it looks like Lexington Law has a good reputation of fixing your credit. Looks like they have helped a lot of people get their financial lives back. Good company with great rep.

  3. ScottBaker says:

    Yet the stock market – whose returns often fuel the purchase of real estate, at least at the higher end – continues to flirt with all-time highs, proving you can have inflation at the high end “trickle down” to everyone else, even if wages for the bottom 80% have not risen in 40 years.