What Are New-Home Sales?
Every month, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly publish a report measuring the sales of new single-family houses in the United States by region: Northeast, Midwest, South, and West. The new-home sales report (also known as new residential sales report) contains data listing several factors:
- The number of new houses sold
- The number of houses on the market
- Median and average new-home sales prices
- A chart depicting yearly sales trends, and
- Whether these sales met, exceeded, or fell short of economists’ expectations
Is New-Home Sales a Leading Indicator?
The new-home sales report provides an important snapshot of housing demand, and even though it provides results from events that took place in the past, many analysts consider it to be one of the economy’s leading indicators. After all, buying a home is a major investment for an individual. Economists view stronger-than-expected new-home sales data as an indication that the economy is healthy because it means that there are more people out there able to buy homes.
Other economic factors that impact new-home sales include:
- Interest rates: When rates increase, so does the cost of borrowing, which could discourage people from taking on mortgages.
- Unemployment rates: This affects the housing market because high unemployment means lower future earnings, which could lessen demand for housing.
- Household income: Another factor that contributes to housing demand is household income because when incomes rise, so does demand.
Why Are New-Home Sales Important?
The housing market accounts for nearly 15 percent of the country’s GDP, which is a significant slice of the overall economy. Each month, individual and institutional investors eagerly anticipate the new-home sales report as well as the release of even more specific homebuilding data, such as housing starts and building permits, which provide investors with an even more detailed view on what’s fueling U.S. growth.
Many investors interpret the data provided in these reports—especially when there are stronger or weaker-than-expected numbers—as a motivation to buy or sell.
TheStreet Dictionary Terms
New-Homes vs. Existing Homes
A new-home sale is recorded by the Census Bureau upon completion of the sales contract and acceptance of the deposit. “The house can be in any stage of construction: not yet started, under construction, or already completed,” it states.
The existing-home sales report, on the other hand, is released by the National Association of Realtors, not the Census Bureau. Existing homes are not new. This category includes single-family homes, condos, and co-ops.
An existing home is considered “sold” upon the completion of the closing process, which usually takes between 30 and 60 days. Therefore, even though the new-home sales and existing-home sales reports are released around the same time each month, they actually measure different time periods. For that reason, in 2000, the National Association of Realtors created a new sales measurement called pending-home sales, which contains data on homes that have been sold yet not fully closed. The pending-home sales report has a duration similar to new-home sales. This information can be found on the National Association of Realtors website.
When Is New-Home Sales Data Released?
The new-home sales report is released at 10:00 AM on the 17th workday of each month and measures the preceding month period.
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Does the Stock Market Affect New-Home Sales?
Stock market researchers have compared monthly gains in the stock market with housing data, and while the long-term trend for both has been positive, there is no direct relation between real estate prices and stock market gains. Therefore, investors cannot conclude that the stock market will correlate with the housing market, and as such, housing prices don’t necessarily go down when the stock market goes down (or vice versa).
Of course, there are always two sides to every coin, and some might argue that home buying is evidence of a phenomenon known as the “Wealth Effect,” which means that people tend to spend more when they believe that the value of the things they own is rising, so if their financial assets are increasing, they may feel more comfortable making a large investment, like buying a house.
How Do New-Home Sales Affect the Economy?
According to data from the Federal Reserve, as of October 2020, real estate accounted for 25 percent of household net worth in the United States, which means that a large slice of American wealth is directly tied to the housing market. Plus, a strong economy is reflected by increased demand for the goods and services that complement the housing market, such as home goods, furniture, appliances and automobiles.
How to Interpret New-Home Sales
Generally speaking, economists view new-home sales that exceed expectations as an indication that the economy is strong. When new-home sales data comes in lower than expectations, that is taken as one of the first indicators of an economic slowdown.