New Home Sales — The BIG Story is Minimal Inventory, The Lowest in a Decade
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The new home sales numbers look like the profile of a double black diamond ski run, with moguls at the bottom of the hill. Good news is that we have finally run out hill, so to speak, and are just now starting to head up the other side of the valley. The first chart shows the 12-month moving average of new home sales. We are now seeing the first indication of a market that is recovering—and that is great news. Note: Even though the data are seasonally-adjusted annualized rates, the 12-month moving average removes noise and more succinctly shows the trends in homes sales.
While the source for existing home sales data is the National Association of REALTORS®, new home sales data are provided by the U.S. Bureau of the Census Each of these sources counts a sale differently. The Realtors count only properties that close as sales. New home sales are defined as, by the Census, “a deposit taken or sales agreement signed.” In the past 28 months, new homes counted sold where in the following stages of completeness:
- 23.5 percent of new homes counted as sold were Not Started
- 30.9 percent of the new homes counted as sold were Under Construction
- 45.7 percent of the new homes counted as sold were Completed
Thus, while existing home sales directly correlate with title insurance revenues in the respective month or quarter reported, that is not the case with new home sales.
New home prices, unlike existing home prices, have declined less than a third from the peak (down 8.1 percent from September 2007 vs. existing homes down 26 percent from the peak) . This graph shows the 12-month moving average of median new home prices. Notice the recovery in price already taking place in new homes.
The real story, I believe, is the literal collapse of the inventory of new homes (and recall that a permit issued, even though construction is not yet underway, is counted in new home inventory). New home inventory is less than a third of the level seen at the peak, and almost half that of the early 2000s.
In the past 28 months, new home inventory was made up of:
- 14.3 percent had a building permit issued but were Not Yet Started
- 46.2 percent were Under Construction
- 39.6 Percent were Completed
While new homes sales continue to crawl up from the bottom, they indeed are rising—albeit very slowly. Price is already on a trajectory towards recovery. The biggest story, however, is the minimal inventory of new homes for sale—and that is the prelude to rising home prices.
And yet another sign of an improving housing market.