New home sales, just like it’s paternal twin existing homes sales, came in at a seasonally-adjusted annualized rate of 497,000 in June 2013. This was the largest number of sales since July 2008. When comparing June 2013 SAAR sales numbers to the same month in the prior year, sales are up 38.1 percent and median price 7.3 percent to $249,700.
When analyzing the 12-month moving average of the SAAR of sales (which removes the noise in data from month-to-month and better reveals trends), transactions grew by 25.5 percent versus June 2012. When compared sequentially from May 2013, sales increased 2.8 percent. Median price, again using the 12-month moving average, escalated 11.2 percent year-over-year, and sequentially by 0.6 percent from May 2013.
Statistical Side Note: The base data provided by the U.S. Census Bureau (click http://www.census.gov/construction/nrs/ then click Current Press Release) shows why the 12-month moving average is a preferred statistic over the base number. In May 2013, the median new home price was $263,900, while June 2013 indicates $249,700. Hence the June median home price was 5.4 percent less than a month earlier. Simple interpretation may lead the reader to incorrectly conclude that prices dropped by 5 percent. The likely cause of the decline was not individual home prices declining, but rather greater number of sales of lower-priced dwellings—perhaps smaller homes , with more entry-level, first-time homebuyers. I would have a difficult time believing that prices declined, and would argue that the long-term trend remains positive. By calculating the 12-month moving average (which was $246,808 in June 2013), and comparing it to the May 2013 moving average of median prices of $245,383, the implied sequential gain was 0.58 percent, or 7 percent on an annualized basis.
The following graph shows the 12-month moving average of new home sales and median prices
So what would be the new normal number of sales? I revert back to the sales of new homes in 2002 to answer. The year 2002 was the last normal year, I believe, prior to subprime lending to the masses and the rise and implosion of the housing bubble. The 12-month moving average of SAAR new home sales in 2002 was 976,000 – rounded to one million. At the peak of the bubble, the 12-month moving average number of new home sales reached 1.307 million (January 2006). So again I feel confident that one million new home sales is doable, and probably a conservative number.
When will the one million number of new home sales be reached? I would estimate in three years. To obtain such requires a doubling in the number of new home sales. A compound annual 25 percent increase in sales reaches that target. Given that the 12-month moving average gain in sales in the prior 12 months was 22.4 percent, and that the June 2013 SAAR sales number was up 38 percent, the three-year target is doable.
A prerequisite between now and then is a significant increase in residential building permits. The following table notes the total number of dwelling permits issued per year since 2000 and the corresponding 12-month moving average SAAR of new home sales.
Thus, one million new home sales, again assuming the same relationship observed in 2002, would require 1.82 million total building permits—a number reached pre-boom.
- New home sales will continue to expand, and as builder-ready lots hit the market in the next 12 to 36 months. Construction, driven by demographic (population) and economic (jobs) growth, will progress in the coming years at a 25 percent annual growth rate.
- New home median prices will likely rise at a range of 5 to 6 percent in the coming three years. While this rate is basically one-half the current rate, it should be sustainable.
Key to all of this is ongoing job creation and the availability of lots, materials and skilled workers—and the workers may be the biggest unknown.