New Home Sales Pickup in May 2020

New home sales picked up the pace growing by double digits percentage wise in May 2020, as the demand for clean, safe and never-lived in housing rose.  Sales came in at 676,000 dwelling units on a seasonally adjusted annualized rate (SAAR) according to the U.S. Census Bureau, up 16.6 percent from the revised 580,000 in April and 12.7 percent better than the 600,000 one year ago.  Median sales price was $317,900 versus $308,000 one year ago (+3.2 percent) with the average price at $368,800 compared to $377,200 last year (-2.2 percent).

The first graph shows new home sales and median price since 2007.  In April, the National Association of Home Builders reported that just 22 percent of builders had cut their prices by an average 5 percent compared to 52 percent lowering prices in May 2007 and 49 percent in March 2008.  See the full article from the NAHB at https://nahbnow.com/2020/05/survey-22-of-builders-lowered-prices-in-april/

Since 2001, in only one month – June 2004 — was the new home median price less than existing home price (just 1.5 percent less with new home median at $226,100 and existing $229,500).  Since 2001, the premium paid for new homes averaged 22.5 percent with a median of 21.1 percent.   The next graph shows median price for new and existing homes since 2001.  Monthly seasonality is readily visible in the existing home median price series.

The average new home price premium on a 12-month moving average is shown in the next graph.  Lowest recorded 12-month average premium since 2002 was 7.0 percent in March 2006 (the pinnacle of the housing bubble).   New home premiums peaked at 39.0 percent in April 2013 and settled to 16.7 percent as of May 2020.

When looked at from a supply and demand perspective, the U.S. in aggregate systematically underbuilt in the past seven years.   My premise is that each new dwelling unit needs from 1.25 to 1.5 net new additional jobs to create adequate effective demand necessary to absorb new deliveries to the market place.  Annual net new jobs serve as the proxy for demand while new residential building permits reflect supply. Dwelling units include all apartments, condominiums, townhouses and single family.  As shown in the following table, the U.S. added 16.926 million new jobs from 2013 through 2019 and issued building permits for 8.435 million new dwelling units.   This equates to 2.0 net new jobs per new dwelling unit.   Assuming that 1.5 new jobs per new dwelling is equilibrium, then the U.S. underbuilt the market by one-third in the past seven years.

New home sales are different from existing home sales on two major fronts:

New home sales are counted when a purchase contract is signed, while existing home sales are not counted until the property actually closes and ownership transfers.  Many of the new home sales have yet to have a building permit issued or even commenced construction.  Some of the new home contracts never close while others are never built.

 New home sales numbers are revised monthly – with same changes significant in scale.   See two prior blogs examining this at:

 http://blog.stewart.com/stewart/2019/08/26/new-home-sales-july-2019-if-you-do-not-like-the-number-just-wait/

http://blog.stewart.com/stewart/2019/07/01/new-home-sales-may-2019-down-3-7-percent-vs-a-year-ago-or-maybe-not/

As noted earlier, these statistics and metrics will be revised next month by the Census Bureau.  New housing sales are performing much better than existing home sales given the desire for some to own that new, clean, safe and never-lived-in property in these pandemic times.

Ted

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