New Home Sales Jump in May

June 24, 2014

New single-family home sales reached the highest pace in six years in May.

According to estimates from the Census Bureau and the Department of Housing and Urban Development, new home sales were at a seasonally adjusted annual rate of 504,000 in May, a gain of 18.6% over a slightly downwardly revised April (425,000). The May 2014 rate of sales is the highest since May of 2008 and is a significant increase from the winter low point for sales in March (410,000).

May new home sales

The May estimates represent a return to the improving trend that has characterized the recent recovery for the single-family sector. NAHB is forecasting that single-family new home sales will total 515,000 in 2014, a nearly 20% year-over-year gain.

New home inventories were flat in May, holding at the 189,000 revised level for April. Months-supply fell to 4.5 given the increase in the sales rate. Total inventory levels have remained in the 183,000 to 190,000 range since September 2013.

Regionally, the pace of sales in the South increased by 14% for the month, while the West was up 34%. Gains in the South may reflect payback for prior weather-related declines, while gains in the West could be due to improving job market and economic trends. The Midwest was effectively unchanged (1.4% increase) from April but has now experienced two solid months after weaker sales figures during the wintry first quarter. Sales in the Northeast were up 54.5%. It is important to keep in mind, however, that the regional numbers have large confidence intervals around the estimates.

sales by constr stage

The graph above presents monthly sales totals by stage of construction. Over the last year and a half, there have been gains in sales not-started-construction and sales currently under construction. In May, there was a 50% monthly increase in sales of homes not yet begun construction, rising from 12,000 for the month to 18,000.


New Home Sales Steady

May 23, 2014

The rate of new home sales increased 6.4% in April from an upwardly revised March to 433,000 virtually matching the first quarter average of 434,000 (seasonally adjusted annual rate). The 26,000 monthly increase was entirely due to a 27,000 increase in sales in the Midwest region. However, the monthly and regional data are subject to significant variability so it is not clear that buying conditions were significantly different in the Midwest.

The April Midwest 84,000 monthly sales rate was significantly different from the 9-month average of 58,000 but still not within a 90% confidence interval indicating a change.

The most positive component of the release was a continued increase in inventory, now up to 192,000 homes for sale from a low of 142,000 in July 2012. Builders continue to experience supply chain difficulties but the slow increase in inventory indicates some ability to expand construction. More importantly, the increase in supply provides more opportunity for potential home buyers to find the home they want and provides an alternative to the very low supply of existing homes on the market.

New home sales prices dropped 1.2% but that is more likely a compositional effect of the large increase in sales in the Midwest; sales of homes over $400,000 declined slightly.

New home sales remain at half their normal levels as the economy and potential home buyers continue to readjust to the devastating impacts of the Great Recession and its aftermath. Housing market conditions are in good shape for a strong recovery; mortgage rates remain historically low, affordability while down from extremes remains good by historic standards and a significant amount of pent up demand remain unfulfilled. However, job growth is behind past recessions and income growth especially for young adults is slow or negative. As the economy improves on a more sustainable and consistent basis, housing will also improve more rapidly.

New Home Sales


First Quarter: Sources of New Home Sales Financing

April 23, 2014

The share of new single-family home sales purchased using Federal Housing Administration (FHA) backed mortgages continued to fall at the start of 2014.

According to data from the Census Bureau’s Quarterly Sales by Price and Financing, the onset of the housing crisis in 2007 led to a decline in the share of new home sales due to conventional mortgage financing and increases in the shares due to mortgages backed by the FHA and the Department of Veteran’s Affairs (VA), as well as cash purchases.

new home sales financing

For the first quarter of 2014, the share of cash purchases rose slightly to 7.5% from just more than 7% during the prior quarter. The high point for cash purchases occurred in the third quarter of 2011 when the market share was almost 8% of sales. Thus, the cash share of new single-family home sales is down somewhat from post-recession peaks but remains elevated compared to more normal periods (e.g. approximately 4% share during 2002-2003).

In contrast, cash purchases constitute a considerably larger share of the existing home market – 33% of sales in March 2014 for example.

It is worth noting that another measure of cash sales for total new construction from CoreLogic shows a higher level of cash sales than the Census: 17.7% in December 2013.

New home sales due to FHA-backed loans fell to 13% of the market during the first quarter. This is down from 27.6% in the first quarter of 2010 but above the 10% 2002-2003 average. As the conventional mortgage financing share has risen, the share of new single-family home sales due to FHA-backed mortgages has declined. Falling FHA loan limits will likely place additional downward pressure on this share in 2014.

VA-backed loans were responsible for about 7.5% of new home sales during the first quarter of 2014.

These sources of financing serve distinct market segments, which is revealed in part by the median new home price allocable to each. For the fourth quarter, the median new home price due to FHA financing was $222,600. The median price for VA-backed loans rose to $264,000.

Conventional mortgage financing had a median price of $276,900.

Finally, the median price for cash purchases for the fourth quarter was $320,100.


New Home Sales Falter

April 23, 2014

Census and HUD reported March new home sales were down 14.5% in March to a seasonally-adjusted annual basis of 384,000, the lowest level since July 2013. Three of the four regions also saw a decline while the Northeast saw a small (3,000 homes) increase. The US is down year-over year by 13.3% and all four regions also experienced an annual decline.

Home prices, on the other hand, rose 12.6% year-over-year to $290,000, the highest ever recorded. The higher prices are due to sales sliding up the price spectrum. The share of homes sold between $300,000 and $500,000 rose from 30% in the fourth quarter of 2013 to 37% in March. The share selling for less than $200,000 dropped 3 percentage points.

Even as mortgage rates soften a bit, potential home buyers with even small dings in their credit background are unable to qualify for a mortgage and so are out of the market. Since they tend to buy more modestly priced homes, that end of the spectrum has seen lower sales and the whole market has lower demand.

Congress is working on at least some solutions to the uncertainty in the mortgage market by defining the government’s place in the secondary market. A replacement for Fannie Mae and Freddie Mac is being seriously discussed in both chambers and a markup is scheduled in the Senate this month. While that will not solve all the uncertainties and tightness in the market, it will go a long way to providing a path to a more normal, sustainable conduit for mortgages from originator to investor.

The first quarter 2014 has been rocked by unusually cold and wet weather causing a drop in construction and some odd sales patterns. January was better than expected, February was in line with expectations and March was lower than expected. The average is close to what NAHB expected: 434,000 actual versus a forecast of 438,000. Looked at from a quarterly basis, activity is in line with the modest recovery. The trend downward for two months is the worrisome part. Pent up demand, relatively low mortgage rates and still good affordability support confidence that sales will improve as 2014 evolves.

New Home Sales (000s)


New Home Sales by Financing: Falling FHA Share

January 27, 2014

The share of new single-family home sales purchased using conventional mortgage financing is rising, as the share of Federal Housing Administration (FHA) backed mortgages fell during 2013.

According to data from the Census Bureau’s Quarterly Sales by Price and Financing, the onset of the housing crisis in 2007 led to a decline in the share of new home sales due to conventional mortgage financing and increases in the shares due to mortgages backed by the FHA and the Department of Veteran’s Affairs (VA), as well as cash purchases.

new sales by financing_4q13

For the fourth quarter of 2013, the share of cash purchases fell slightly to 6% from 7% during the prior quarter. The high point for cash purchases occurred in the third quarter of 2011 when the market share was almost 8% of sales. Thus, the cash share of new single-family home sales is down from post-recession peaks but remains elevated compared to more normal periods (e.g. approximately 4% share during 2002-2003).

In contrast, cash purchases constitute a considerably larger share of the existing home market – 32% of sales in December 2013 for example.

New home sales due to FHA-backed loans fell to 13% of the market during the final quarter of the year. This is down from 27.6% in the first quarter of 2010 but above the 10% 2002-2003 average. As the conventional mortgage financing share has risen, the share of new single-family home sales due to FHA-backed mortgages has declined. Falling FHA loan limits will likely place additional downward pressure on this share in 2014.

VA-backed loans were responsible for 7% of new home sales during the fourth quarter of 2013.

These sources of financing serve distinct market segments, which is revealed in part by the median new home price allocable to each. For the fourth quarter, the median new home price due to FHA financing was $212,400. The median price for VA-backed loans was similar: $205,100.

Conventional mortgage financing had a median price of $276,600.

Finally, the median price for cash purchases for the fourth quarter was $261,000.


New Home Sales Take a Breather

January 27, 2014

Census and HUD reported new home sales for December were down7% to an annual rate of 414,000. The first estimate of 2013 annual sales rate shows sales advancing 16.4% and the highest since 2008. In addition, the fourth quarter new homes sales were virtually the same as the second quarter of 2013.

The NAHB/Wells Fargo Housing Market Index showed a similar anticipatory pattern of falling in the spring followed by a decline in sales in the summer. Likewise, the HMI faltered a bit in the fall followed by sales falling slightly from third to fourth quarter.

Regionally, the Northeast declined 36.4%, which may have been a result of brutally cold and snowy weather. The South and West also declined 7.3% and 8.8% respectfully, both to levels seen in the second quarter. The Midwest rose 17.6% on a monthly basis but November was unusually low.

Inventory fell to 171,000 or down 2.8% but because of the slower sales pace, the month’s supply increased to 5 months. The number of completed homes for sale remains near historic low levels at 40,000 compared to a more normal level of over 100,000. Median sales prices rose 4.6% with no particular shift in the distribution of sales price.

The momentary dip is more likely a residual effect of the jump in interest rates, unusual weather and a readjustment to more sustainable level of sales. NAHB expects new home sales in 2014 to pick up again and reach 600,000 for the year.

New Home Sales and NAHB HMI


New Home Sales Steady

December 24, 2013

New home sales for November declined a statistically insignificant 2.1% from an unusually high October.  The average for the first two month of the fourth quarter is the highest since mid-2008.  The previous three months were also revised upward by a total of 88,000 sales.  The report was mixed regionally with the Northeast and West rising 15.2% and 31.1% respectively.  The Midwest and South were down 26.55 and 9.1% respectively.  The decline in the South, the largest region in terms of sales, was from a high in October of 287,000, the highest since April 2008.

Inventories dipped to 167,000 representing a 4.3 months supply and the lowest months’ supply level since the first quarter of 2013.  Builders continue to behave prudently and banks continue to hold tight on lending to builders for acquisition, development and construction loans.

The steady increase in new homes sales after a pause in mid-year supports the expected sales of 600,000 new homes in 2014.


New Home Sales Up

December 4, 2013

The October new home sales report from Census and HUD showed a 25% increase over a low September level.  Both months were reported late and together because of the government closer in early October.  The 444,000 level reported for October brings sales back to the levels that were established earlier this year.  All four regions showed significant increases returning to levels at or above the second quarter averages.

The pause and decline in the third quarter appears to be a reaction to rising interest rates and the rising uncertainty around government debt and deficit resolution that led to the shut down in early October.  As rates fell back and the shut down ended, consumers returned to the market.  Even with the large variances, the 25.4% change is enough to be considered an increase at the 90% confidence level.

The inventory of new homes for sale dropped back to 183,000 as builders’ inventories suffered from relatively slow building trends in the last several months.  Because of the uptick in the sales rate, the months’ supply dipped to 4.9 months, the lowest since the second quarter.  The inventory of completed homes is particularly low at 42,000, up slightly from the third quarter and back to levels last seen in the first and second quarter.  The completed inventory is important to many potential home buyers who waited to be certain that their existing home sold and hence need a home ready for occupancy.

Home prices dipped 0.6% from a year ago (the data is not seasonally adjusted) and that appears to be a result of a rise in sales in the$150,000 to $199,999 range and a fall in sales $300,000 to $399,000 range.  Sales were up the most in the Midwest and South, also contributing to the explanation that the virtually no change in prices is driven by composition of sales rather than base home prices.

NAHB expects this sales level to sustain itself through the end of the year as pent up demand continues to feed the market, as interest rates remain low by historic standards and as the supply of existing homes for sale remains low.

October New Home Sales


Sources of New Home Sales Financing

September 23, 2013

While the sources of finance for new home sales have changed noticeably since the start of the Great Recession, cash sales remain more common for existing homes compared to new construction.

According to data from the Census Bureau’s Quarterly Sales by Price and Financing, the onset of the housing crisis in 2007 led to a decline in the share of new home sales due to conventional mortgage financing and increases in the shares due to mortgages backed by the Federal Housing Administration (FHA) and the Department of Veteran’s Affairs (VA), as well as cash purchases.

sales by financing

For the second quarter of 2013, the share of cash purchases rose slightly to 7.4%. The high point for cash purchases occurred in the third quarter of 2011 when the market share was a somewhat larger 7.9%. In contrast, for August existing home sales, cash purchases totaled 32%, compared to 27% in August 2012. The cash share for new homes is smaller because cash buyers in the existing home market are looking for bargains for rental purposes, while for-sale new construction is dominated by owner-occupiers.

New home sales due to FHA-backed loans stood at 17% of the market for the second quarter. This is down from 27.6% in the first quarter of 2010 but above the 10% 2002-2003 average. The market share of FHA-backed loans was higher during the 2009-2010 period due to the federal homebuyer tax credit.

VA-backed loans were responsible for 7.4% of new home sales during the second quarter of 2013.

These sources of financing serve distinct market segments, which is revealed in part by the median new home price allocable to each. For the second quarter, the median new home price due to FHA financing was $197,900. This is relatively unchanged from the average over the last two years of $199,700.

The median price for VA-backed loans was $273,300, higher than the two-year average of $234,100. Conventional mortgage financing had a median of $285,900, higher than the two-year average of $263,700.

Finally, the median price for cash purchases of new home sales rose substantially in the second quarter to $318,000. The two-year average is about $255,000. The rise in the price of the typical cash purchase reflects market mix issues, similar to force that have pushed up the size of a typical newly built single-family home: higher wealth buyers are in the market in greater concentration relative to other buyers, particularly younger, first-time buyers.

Additional annual data for this topic can be found in a recent NAHB study using information from the Census Survey of Construction.


Lost Home Sales

September 6, 2013

The long and deep housing recession left many homeowners remaining in place and potential first time home buyers continuing to rent or stay with parents or friends.

In a recent article, NAHB’s Heather Taylor reported the number and distribution of first time and repeat movers in American Housing Survey odd numbered years 2001 through 2011. The AHS reports 10 million purchased in the two years prior to the 2001 survey but home buying declined to 6.8 million households who purchased a home in the two years prior to the 2011 survey. Between 2001 and 2011, the population of individuals who could have potentially purchased a home increased by almost 20 million. Absolute levels for the most recent period and the average of the oldest two periods are summarized below.

table 1

Repeat buyers and first time buyers dropped out of the market in droves. In order to normalize the trend, the table below shows the propensity to purchase by dividing the number of purchases by the population of that age group.

table 2

The only cohort that increased home buying participation was the very small group 65 years old or older buying their first home. First time home buyers increased their share of all home buying because the group did not reduce its propensity to buy as much as repeat buyers. Repeat buyers already own a home so may have been more able to work around the normally expected move while first time home buyers were less able to postpone their purchase. First time home buyers may also have been taking advantage of low house prices and low mortgage rates while repeat buyers had to be concerned with sufficient equity and trading in a recently refinanced low rate mortgage.

More recent information suggests first time home buyers are a much smaller share of the home purchases as house prices begin to rise, as repeat buyers come back into the market, as investors compete for the same homes as first time home buyers want and as lending standards make it more difficult for young households with lower incomes to qualify for a mortgage.

If the same propensities to purchase from the early the period 2000-2003 remained in place in 2011, there would have been almost 4 million more home sales over the two-year period prior to the 2011 AHS. The table below details the householders’ age where those sales would have occurred.

table 3

The missing 2 million home purchases per year are the result of first time home buyers unable to qualify for a mortgage, with insufficient cash for a down payment, with large non-housing debts, with uncertain or low-paying employment and with a more mobile future. Without incoming first time buyers, trade-up buyers have a reduced market for their existing home. Similarly, repeat buyers may not be able to qualify for a mortgage, may have insufficient or no equity and may remain concerned about future home prices and mortgage rates.

Some of the postponed home purchases will be retrieved as the barriers diminish although it is difficult to gauge what share. Even if only half do return, that is an additional 1 million home sales in pent up demand on top of the recovering demand from a normal year’s flow.