New Home Sales Show Signs of Life After Long Winter

The Census Bureau and the Department of Housing and Urban Development today released New Residential Home Sales survey data for March 2010.

The Census Bureau collects new home sales based upon the following definition: "A sale of the new house occurs with the signing of a sales contract or the acceptance of a deposit." The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction.

From the release...

Sales of new single-family houses in March 2010 were at a seasonally adjusted annual rate of 411,000.

The chart below illustrates how big of a contraction New Home Sales underwent from 2005 to 2010....we are now bouncing along right above record low levels. After an extremely slow winter, new home sales are back to the level seen when the first tax credit expired in November.

This is 26.9 percent (±21.1%) above the revised February rate of 324,000 and is 23.8 percent (±18.7%) above the March 2009 estimate of 332,000.

The seasonally adjusted estimate of new houses for sale at the end of March was 228,000.

This represents a supply of 6.7 months at the current sales rate.

The median sales price of new houses sold in March 2010 was $214,000; the average sales price was $258,600.

Below is a breakdown of new home sales by price levels.  Most sales range from 150k to 200k. Notice how sales shifted toward higher home prices (purple) during the boom years but have begun to revert back to the mean lately. This goes to show how out of control homebuyer demand supported by free mortgage money can distort price equilibrium in the housing market. The blue category is more representative of the median price today.

First of all, this was expected as the homebuyer tax credit is expiring at the end of the month. In order to qualify, homebuyers must sign a sales contract by April 30.

Second, I know this data seems great, but I cannot emphasize this enough: we are coming off of a RECORD LOW month of sales activity. Even a modest uptick in New Home Sales will appear monumental on a relative basis. For example, if sales rose from 1 to 2 in March, the rise would be 100%.

When housing supply/demand is in better balance, new home sales usually lead existing home sales by a month or two. In the current environment, I think the opposite will occur. Existing Home Sales will be a forward looking indicator for New Home Sales. The faster existing inventory is taken down, the sooner builders are likely to break ground on new projects. READ MORE ABOUT EHS BEING A LEADING INDICATOR

If you missed it, I discussed the idea that "shadow buyers" are lurking on the sidelines as well how many mortgage applications the MBA may or may not be missing in their weekly survey. GOOD READING FOR ANY HOUSING OR MORTGAGE PROFESSIONAL