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July 2013 New Home Sales Were Really Bad

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New home sales data for July 2013 were sickly, and were well below expectations. The data remains very noisy and needs to be averaged to make any sense of it.

  • The month-over-month decline is even worse than appears due to significant downward revision in the previous 3 months data.

Econintersect Analysis:

  • sales growth decelerated 20.4% month-over-month.
  • year-over-year sales up 6.1%.
  • three month trend rate of growth decelerated 6.6% month-over-month.

US Census Headlines:

  • sales down 13.4% month-over-month
  • year-over-year sales up 6.8%
  • market expected annualized sales of 475K to 485K (actual was 394K – 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 growth trend line (not drawn) is relatively flat over the last two years. With the July data, the trend is down – and the year-over-year improvement is the worst since late 2011.

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 July 2013 were at a seasonally adjusted annual rate of 394,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 13.4 percent (±14.5%)* below the revised June rate of 455,000, but is 6.8 percent (±18.6%)* above the July 2012 estimate of 369,000.

Unadjusted New Home Sales Monthly Volumes In Thousands

The median sales price of new houses sold in July 2013 was $257,200; the average sales price was $322,700.

Unadjusted Median New Home Sales Price

The seasonally adjusted estimate of new houses for sale at the end of July was 171,000. This represents a supply of 5.2 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. However, the data is produced by sampling:

To provide nationwide coverage of building activity, a multi-stage stratified random sample procedure was used to select approximately 900 building permit-issuing offices, and a sample of more than 70 land areas not covered by building permits.

Each month, for permit-issuing places, a sample of residential building permits is selected from each of the sampled permit offices. The probability of selecting a permit is proportional to the number of units authorized by the permit. Permits for one-to-four-unit buildings are sampled at an overall rate of 1 in 50. All permits authorizing buildings with 5 or more housing units in the sampled permit offices are selected.

Each month, for areas that do not require building permits, field representatives conduct a road canvass in each of the sampled non-permit land areas to identify the start of new buildings. All new residential buildings found are selected for the survey.

Once a permit or building is selected, a field representative contacts the owner or builder, by telephone or in person, to conduct the interview each month as necessary. Contact continues until the project is either completed or abandoned. If a single-family home is not sold by the time of completion, the project will continue to be followed until the sale occurs. Each month, interviews are required for about half of the buildings currently being followed up.

Each month, housing starts, completions, and sales estimates derived from this survey are adjusted by the total numbers of authorized housing units (obtained from the Building Permits Survey) to develop national and regional estimates. Estimates are adjusted to reflect variations by region and type of construction, and to account for late reports and houses started or sold before a permit has been issued. Reported data are seasonally adjusted. The Construction Methodology (PDF) document contains further information.

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 July 2013 New Home Sales Were Really Bad

  1. lkofenglish says:

    again your honesty is beyond belief greatly appreciated.  the societal implications of this calamity are still simply not being acknowledged by the appropriate authorities here.  so while this makes for great blogging fun for exceptionally smart guys such as myself this is no laughing matter.  the “panglossian” view of this as a “no biggie” is truly a sight to behold.  the whole “deer in the headlights” issue as it relates to funding issues is truly amazing.  we’re going to talk our way out of this?  wow.  i hope we have something good to say.  anywho this Epic Fail has not stopped the US innovation machine from rocking and rolling (in fact the exact opposite is true) which is freeing…HAS freed up actually…a staggering amount of resources for the “war effort.”  thank God for that!  we’d have 40 percent unemployment right now if it weren’t for the military and other assorted Federal agencies and programs.  and again thanks for telling it like it is.

  2. jack carpenter says:

    Good review, but you did not mention that this is just a symptom of a larger policy problem having to do with the roll of governments in a society. In the current culture load the myth is that government is a super entity which capacity beyond man and society. Of course it does not but few realize that such beliefs are the root of the failure of modern and ancient governments. The need for housing is part of humanity but is also the source of political gamesmanship where the public and voters are told that future “growth” in economy can pay for present spending and indulgences of all kinds.  Is it possible to debunk the myth when the citizen voter wants to believe as the path to things they want but can not afford.  The myth of growth as the cure to disconduct presently is one of the more dangerous we harbor.

  3. @jack carpenter 
     
    thank you for your commentary.  this is an analysis post – not opinion so i do not stray into areas you have pointed out.  i would point out that at least two countries in asia have successfully pulled off home ownership for the masses.  at this point, the USA formula does appear flawed.
     
    steven hansen