A few Comments on February New Home Sales

by Bill McBride on 3/23/2017 12:51:00 PM

New home sales for February were reported at 592,000 on a seasonally adjusted annual rate basis (SAAR).  This was well above the consensus forecast, however the three previous months combined were revised down slightly.  Overall this was a solid report.

Note: February 2017 was warmer than normal in most of the country, and since new home sales are counted when the contract is signed, the nice weather might have had a positive impact on sales in February.

Sales were up 12.8% year-over-year in February.  However, January and February were the weakest months last year on a seasonally adjusted annual rate basis – so this was an easy comparison.

It will take several months of data to see the impact of higher mortgage rates – and this is the seasonally weak period – so we might have to wait for the March and April data to see if there was any impact.

Earlier: New Home Sales increase to 592,000 Annual Rate in February.

New Home Sales 2015 2016Click on graph for larger image.

This graph shows new home sales for 2016 and 2017 by month (Seasonally Adjusted Annual Rate).  Sales were up 12.8% year-over-year in January.

For the first two months of 2017, new home sales are up 7.1% compared to the same period in 2016.

And here is another update to the “distressing gap” graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I’m looking for the gap to close over the next several years.

Distressing GapThe “distressing gap” graph shows existing home sales (left axis) and new home sales (right axis) through February 2017. This graph starts in 1994, but the relationship had been fairly steady back to the ’60s.

Following the housing bubble and bust, the “distressing gap” appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.