How Much Overstated are New Home Sales?

Mish

Year-to-date new home sales total 450,000. That is the 6th consecutive increase January through July.

Comparisons Gone Haywire

Seasonally adjusted annualized (SAAR), New Home Surged to a 13-Year High With the Midwest Leading the Way.

By Region Month-Over Month Percentages

  • US: +13.9%
  • Northeast: -23.1%
  • Midwest: +58.8%
  • South: +13.0%
  • West: +7.8%

By Region Year-Over Year Percentages

  • US: +36.3%
  • Northeast: +25.0%
  • Midwest: +81.4%
  • South: +27.6%
  • West: +40.8%

Covid-Skewed Numbers

Due to Covid-19, 2020 is not a normal year. 

Strange things happen when you make seasonal adjustments and even year-over-year unadjusted comparisons in such setups.

Unadjusted Numbers

On an unadjusted basis there were 78,000 newly homes sold during July vs 75,000 in June. 

Those 78,000 new home sales in July alone were reported as 901,000.

However, the year-to-date total for seven months is only 450,000. 

What's the Valid Comparison?

I downloaded the unadjusted new home sales data from Fred (the St. Louis Fed data repository) and totaled up the year-to-date numbers since 1963.

Year-to-date, there were 450,000 new homes sold. Last year, there were 415,000 homes sold through July.

The year-over-year gain is a more realistic 35,000 / 415,000 = 8.4% not 36.3%.

For those with money and a job, Covid helped. The Fed slashed interest rates and mortgage rates followed.

But problems brew beneath the surface.

Mortgage Lenders Ask New Question: Do You Intend to Pay?

Serious defaults are at a decade high and lenders are now have new forms.

For discussion, please see Mortgage Lenders Ask New Question: Do You Intend to Pay?

Mish

Comments (19)
No. 1-8
numike
numike

A report from Realtor.com. “The nation’s surging home prices don’t seem to care about the recession the country is mired in. It has all led some to wonder: Are some markets getting too hot? Could we be entering the dreaded bubble territory once again? ‘Some markets are overvalued,’ says Javier Vivas, realtor.com’s director of economic research. ‘Growth of prices in a recession is pointing in that direction. Some markets are seeing increased risks of price corrections.'” https://www.realtor.com/news/trends/home-prices-shooting-up-is-housing-market-overheating/

Eddie_T
Eddie_T

I wouldn't expect residential real estate to be static price-wise in an environment when stock indexes are making new highs every week. So it might be inflation expectations...in addition to low rates, that are supporting housing right
now.

But if the equity market bubble pops, housing will probably tank....as will metals and most other assets. (jmho.) I still like owning houses.....it's just a matter of how much leverage is acceptable....right now the less the better, in my view.

But within reasonable limits, it seems like a good time to buy and hold tangible assets. If it is possible to light up the fires of inflation, is there anything more likely to ever do it than pumping $6T into the economy in less that 6 months?

I have read you for many years Mish, and always favored your general POV. Do you think runaway inflation is even possible these days? I wonder.

JJ Johnson
JJ Johnson

As an investment property owner in suburban minneapolis, I'm holding out.

Supply is very low and lack of building materials isn't ending soon.

lindaclark
lindaclark

I think there will be a big change in the real estate market this year, a year full of volatility due to the great influence from Covid 19. https://ps5releasedate.com

Casual_Observer
Casual_Observer

Home sales are overstated just like everything else in America.

IA Hawkeye in SoCal
IA Hawkeye in SoCal

It's all about playing the game, by their rules. You have to do that or you will never be successful (unless you break the law but that's another tale). What are the "rules"? They are not far off from the Life board game, and it's a heavy burden for young folks. But around the age of 18 you are responsible for picking a field to be educated in that's in demand ("get a good job") or having what it takes to be a successful entrepreneur. After the learning curve that is your 20's, you should be fiscally responsible in your 30's and 40's and have fruitful investments (stocks, bonds, real estate). When you're in this "club", there are far more options provided by the Gov to bail you out, than their are if you're a burger flipper and your only options are welfare related. And if you persevere and remain in this club, you'll have more enjoyment in your later years.

These days, you will probably need to re-educate yourself at some point in your career, to keep yourself in demand. Or leave to a smaller pond to be a bigger fish.

And at the end of the day, I don't know what happened in America but they seemed to have had it figured out back in the 80's. Journey said "some will win, some will lose" and John Cougar Mellencamp said "There's winners, and there's losers". It sucks but you may bust your hump for 20 or 30 years, only to have your job field, city, or health collapse and suddenly it's game over. But it's certainly a far better alternative than living in most countries in this world.

America has issues as any country does, but you better bet your butt that I won't trade the ability to hit a freeway and drive across the country, and see all the beautiful sights, for anything else in this world.

Tony Bennett
Tony Bennett

"On an unadjusted basis there were 78,000 newly homes sold during July vs 75,000 in June."

...

There is also something subtle to consider. The report covers 4 sections of the country. Sales are quoted "in the thousands". If raw number ends in 499 or less ... it is rounded DOWN to whole thousands. Conversely, a raw number ending in 501 or greater ... it rounded UP to whole thousands.


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