New Home Sales on Course

HUD and Census reported new home sales up 1.5 percent in March over February at an annual rate of 417,000 per year. Except for the January outlier rate of 445,000, this is the highest rate of sales since the end of the home buyer tax credit in early 2010. The first quarter average is 424,000 annual sales, which is the highest since third quarter 2008. Regional activity was mixed with the Northeast and South up (21 and 19 percent respectively) and the Midwest and West down (12 and 21 percent respectively).

 
Inventories continue near historic lows at 153,000 homes and a mere 41,000 homes completed and ready to occupy. In a normal market, there are about 100,000 ready-to-occupy new homes for sale. At the current sales pace, the inventory represents 4.4 month’s supply.

 
The pace of new home sales is about half of a normal level as the industry and home buyers begin the long road back to equilibrium. Given the losses in the infrastructure of the industry, this modest recovery pace is both what is to be expected and what can be managed until more resources such as labor, lots and building materials return to home building.

New Home Sales Readjust

New home sales were down 4.6% in February from January but up 12.3% from a year ago. The drop in February was from an elevated January that was the highest since mid-2008. The inventory of unsold new homes remains very low by historic standards at 4.4 month’s supply.

 
Regionally, the Midwest was the only region with an increase, up 14% to an annual rate of 58,000. The Northeast was down 13% in a month with significant snow fall. The South was down 10% from January and down 6% from a year ago. The region did have more rainfall than usual during February and the 2013 average so far remains above the first three quarter averages in 2012. The West fell 2% but remains at levels last seen since early 2008.

 
Median sales prices rose 3% from last year because more of the homes sold were in the $400,000 plus bracket rather than inflation in individual home prices. Additional house price increases are expected as building costs rise. Building material prices, especially critical components such as lumber and wood sheets, have risen significantly in the past year, labor costs are beginning to rise as builders try to attract lost workers back to the industry and lot prices are starting to rise as the inventory from the past boom is finally absorb but no new development has taken place.

 
The February sales pace of 411,000 is in line with expectations for the year. NAHB expects new home sales to average 449,000 for 2013 as more consumers regain the confidence to purchase a home. At that rate, the home building industry remains at less than two-thirds of what would be considered a normal market.

Home Sales Are Expected To Accelerate In the Coming Months

The National Association of Realtors (NAR) reported that it’s Pending Home Sales Index (PHSI), a leading indicator of home-buying, accelerated by 5.2% in October to settle at 104.8. An index of 100.0 coincides with a level that is considered historically healthy. October’s monthly increase, which is measured at a seasonally adjusted annual rate, comes on the heels of a 0.4% increase in September. Included in October’s increase was an upward revision of 0.1 point made by the NAR to the September level.

Geographically, the increase in the PHSI reflects gains made in the Midwestern and in the Southern regions of the country. However, these gains were partially offset by slight declines in the Northeast and in the West. Pending home sales in the Midwest grew by 15.6% while the South experienced a 5.5% increase. The 0.1% decline in the Northeast likely reflects the effects of Hurricane Sandy. Meanwhile tight inventory accounted for the 1.1% decrease in the West. Nevertheless, all four regions have seen growth in pending home sales since the previous year.

The recent PHSI release suggests that home sales should accelerate in November and December. Since home sales are considered pending when the contract is signed, but the transaction has not yet closed, then the PHSI is considered a leading indicator of home sales. Home sales typically close one to two months after signing. As the Chart below illustrates, the PHSI tracks existing home sales closely. After reaching a low of 75.9 in June 2010, pending home sales have grown steadily, rising by 38.1% over the period. Existing home sales, which are lagged by two months, grew by 45.2%. The spikes in 2009 and early 2010 likely reflect responses to the federal tax credit.

New Home Sales Hold Steady in October

The Census Bureau and HUD reported October new home sales at a seasonally-adjusted annual level of 368,000, which is virtually the same as the three previous months. A 32% drop in sales in the Northeast was likely a result of the threat and ultimate impact of the storm named Sandy.

 
Inventories rose 2,000 to 147,000, which remains at a very low level but shows some promise that builders are able to begin restocking. The month’s supply was 4.8, well below an industry standard of 6 months.

 
Median home prices increased 5.7% and average prices rose 8% from October of last year. The rise is likely a dual effect of rising building costs and a continuation of a compositional effect. Recent home buyers are those that can obtain a mortgage and the tight credit standards are making it less likely for moderate income households to qualify while higher income households are able to make it through the more restrictive thresholds.

 
Regionally, sales were up in the Midwest and West both month-to-month as well as comparing the October level to the third quarter average, which adjusts for typical unusual monthly movements. Sales were down in the South to 176,000 but the August level was unusually high. The three-month moving average still stands at 184,000, which is within a 3% range of the monthly levels from April to August 2012. The Northeast fell 32% but the monthly level of 21,000 was well below the three-month moving average as far back as February 2012.

 
On an annual basis, October sales were up 17.2% from one year earlier and continue to support an expected 22% increase in annual sales for 2012 over 2011. New home sales will continue to rise at this modest pace as the pent up demand is released and as the policy uncertainties at the end of 2012 are resolved.

New Home Sales Continue Improvement

September new home sales increased 5.7% to an annual rate of 389,000, the highest level since the home buyer tax credit expired in early 2010. The three-month moving average of new home sales has increased steadily for over a year as more housing markets begin to see rising home prices and improving consumer sentiment.
The months’ supply of new homes for sale fell to a seven year low of 4.5 months as the pace of sales picked up but the inventory advanced by only 2,000. The number of completed homes for sale ready for immediate move-in remains at a record low of 38,000 as builders remain cautious about building ahead of the market and as credit access remains tight.
Median home price increased 11.7% from September 2011. The price increase is primarily a result of larger, move-up homes being sold rather than an increase in home prices. Move-up buyers with equity and the ability to pass rigid credit checks are a larger share of the market and tend to buy more expensive homes. Some building material prices costs have increased in the past six months but home building remains very competitive with the existing home market so the price increases are more likely a sign of different homes sold than similar homes costing more.
There was a strong regional variation in home sales with the largest region, the South, advancing 16.8% while the second smallest, the Midwest, fell 37.3%. The Northeast and West advanced 16.7% and 3.9% respectively. Monthly regional data do fluctuate significantly and quarterly averages may be a better gauge of regional activity. On a quarterly basis, the Northeast was up 18.5%, the Midwest was down 8.2% returning to levels last seen in early 2012, the South was up 4.9% and the West was up 4% from the second quarter to the third quarter.

New Home Sales Hold Steady

The US Census Bureau and HUD reported new home sales for August remained virtually unchanged from a revised July level at 373,000. The last two months set the highest levels in new home sales since the momentary bump provided by the home buyer tax credit in 2010. The current levels are driven by underlying pent up demand, buyers taking advantage of record low mortgage rates and very affordable home prices.

 
The median home price rose 17% from August 2011, which is the largest year-over-year increase since 2004. The increase is more likely to be a result of the kind of home sold than any significant change in underlying home prices. There was a small shift in the sales distribution from the lower cost South (down 9,000 seasonally-adjusted annual sales rate) to the more expensive Northeast (up 6,000 SAAR) and 21% of the homes sold were over $400,000 compared to 14% in calendar 2011.

 
The increase is also the likely impact of move-up buyers taking a larger share of the market. Because of the overly strict lending standards, current new home buyers are more likely to have a down payment, be continuously employed and have sufficient credit scores to qualify. Those same characteristics are more likely to occur in the move-up buyer who purchases a more expensive home.

 
The inventory of unsold new homes once again established a historic low at 141,000 and the number of completed new homes within that group also dropped to a new all-time low of 38,000. In a normal market where potential home buyers have a wider selection of alternatives, there would be 100,000 completed homes ready for immediate occupancy.

 
The steady level of new home sales supports other housing data showing continued improvement in the housing sector as the number of markets seeing improvement continues to grow.

New Home Sales Continue Rise

New home sales increased to 372,000 per year on a seasonally-adjusted annual basis in July, which ties the revised May 2012 rate for the highest level since the end of the home buyer tax credit in early 2010. Monthly data does have more statistical variations so looking at a quarterly moving average shows sales have been increasing since September 2011.

 
New home sales have improved markedly better than existing home sales since early fall 2011. New home sales have increased 22% since then while existing home sales have progressed less than 5% in the same period. This most recent period is a significant change in performance between the two sectors within the weak recovery. From peak to trough, new home sales fell 80% between July 2005 and February 2011 while existing home sales dropped at maximum of 54% between September 2005 and July 2010.

 
Some of the better improvement in new home sales is due to the low availability of existing homes especially at the lower end of the price spectrums. New homes also offer the latest in technology, energy savings and minimum maintenance offsetting any bargain pricing because of distress. Up to this point, new home prices have had a bottom dictated by the cost of land and building, but as home prices begin to recover, the bottoms rise and building new homes becomes possible again.

Video: NAHB Chief Economist on June New Home Sales

New Home Sales Drop Back

The annual rate of new home sales dropped to 350,000 from an elevated and revised upward May level of 382,000. The larger than expected drop still leaves the quarter-to-quarter change a positive 3.1%. The absolute level of inventories and the month’s supply both remain near historic lows of 4.9 months and 144,000 homes for sale. The number of homes completed and for sale fell to 41,000, the lowest level recorded since inception of the data in 1973.
The extremely low level of inventory is caused by two forces. Builders continue to have difficulty obtaining construction loans to build models and speculative homes and builders hold off finishing homes until buyers sign contracts and make final decisions on finishes. Low inventories leave buyers with fewer choices in the readily-available housing inventory and lessens builders’ competitiveness with the existing market.
Median home prices fell 3.2% from June 2011 (since the figures are not seasonally-adjusted only a year over year comparison is justified). Average home prices were virtually unchanged, which is likely explained by a small gain in the share of homes sold over $400,000 (forcing the average up) and a small increase in the share sold between $150,000 and $199,999 (pushing the median down).
NAHB expects new home sales to continue a modest increase through 2012 as interest rates remain low and house prices begin to tick upward.

Moderate Growth in Existing Home Sales in November ….. Benchmark Revisions Released

Existing home sales continued to grow at a moderate rate on a month-to-month basis in November and also improved upon their year ago level. The National Association of Realtors (NAR) reported sales of existing homes, completed transactions of single-family, townhomes, condominiums and co-ops rose 4.0% in November to a seasonally adjusted annual rate of 4.42 million. This follows a modest increase of 1.4% in October, and a decline of 3.0% in September. On a year-over-year basis, existing home sales are 12.2% higher than the 3.94 million unit level in November 2010.

Single-family home sales increased 4.5% to a seasonally adjusted annual rate of 3.95 million units and were 12.9% above the 3.50 million-unit level in November 2010. Condominium and co-op sales remained unchanged at 470,000 units and are 6.8% higher than their year-ago pace of 440,000 units. Gains were observed across all regions, with the Northeast jumping 9.8% to an annual pace of 560,000 units, the Midwest rising 4.3% to 960,000 units, the West up 3.6% to 1.16 million units and the South increasing 2.4% to 1.74 million units.

The housing inventory at the end of November fell 5.8% to 2.58 million existing homes for sale. At the current sales level, this represents a 7.0-months supply, down from 7.7-months supply in October. The investor share of sales inched back up to 19% (from 18% in October) and the share of first-home buyers also ticked higher to 35% (from 34% last month).

Contract failures, which have been elevated in recent months, remained high in November with 33% of NAR members reporting cancellations caused by declined mortgage applications and failures in loan underwriting from the appraised value coming in below the negotiated price. The cancellation rate is considerably higher than a year ago when it was 9%.

 

After months of anticipation, the NAR released the benchmark revisions to the existing home sales data. This follows concerns raised earlier this year that the NAR’s existing home sales data was showing much stronger gains in the second half of 2010 than other comparable data. The NAR subsequently reviewed their sampling and methodology used for the existing home sales survey. The new benchmark estimates are based on the one-year estimates of the American Community Survey (ACS) from the Census Bureau. Previously the decennial Census data was used as the benchmark. The month-to-month changes will continue to be based on the shift in sales of a 40% sample of the Realtors® multiple listing service (MLS) data.

The benchmark revisions extend back to 2007 and result in an average downward adjustment to sales and inventory data of approximately 14%. In volume terms, this equates to a downward adjustment to existing home sales by an average annual rate of almost 720,000 units (between 670,000 and 760,000 units) per month over the past year, with single-family down 600,000 units (580,000 to 640,000) and condominium and co-ops down by around 120,000 (110,000 to 130,000). The largest revision was to November 2009, with a downward shift from the previous estimates of 1.11 million units (930,000 single-family and over 180,000 multifamily).

The NAR note that, “Although rebenchmarking resulted in lower adjustments to several years of home sales data, the month-to-month characterization of market conditions did not change. There are no changes to home prices or month’s supply.”

The NAR attribute the divergence in their sales projections mainly to a decline in for-sale-by-owner (FSBO) properties. These are not reported in the multiple listing service (MLS) data on which their calculations are based, so were included in the model as a fixed market share. The NAR note that “NAR consumer survey data in 2000 showed FSBOs accounted for 16% market share, which fell to a record low 9% in 2010.” They also suggest that some new home sales were inadvertently included in the calculation, as “more builders began marketing new properties through the real estate brokers that weren’t completely filtered from the existing-home data.”