New Home Sales Nudge Forward

The number of new homes sold in November increased by 4.3% from a downwardly revised October level to 490,000 on a seasonally adjusted annual basis. On a year to date level, sales are up 14.5% from the eleven month total in 2014. Inventories of new homes also increased to 232,000, the highest since January 2010 even as builders continue to seek workers and lots.

New Home Sales – Monthly and Annual
The increases in sales and inventories signifies continued builder optimism and customer demand growth. However, the levels remain disappointing given the amount of pent up demand and the low level of turnover in existing home sales. Most new home sales are to existing home sellers so the weak sales of existing homes and low inventories of existing homes produces fewer potential new home buyers. On the positive side, home equity is up, employment continues to increase and mortgage rates remain low by historic standards. On the negative side, few first time home buyers are in the market as credit standards remain restrictive and young individuals remain living with their parents. Existing home owners are reluctant to sell when the inventory of existing homes remains low, a double-edged retardant to a more robust new and existing home market.

Inventories
Regionally, Northeast sales dropped 29% but from a high October and within the smallest region. Midwest sales also fell 8.6%. The South and West increased 4.5% and 20.5% respectively. For the year, the same is true: the Northeast is behind last year’s total to date by 12.3% and the Midwest is virtually unchanged from the same 11 month period in 2014. The South and West are ahead of last year’s 11 month sum by 18.8% and 19.5% respectively.

Median new home prices increased 0.8% from November to November due largely to the continued slowdown in sales under $200,000. The average price of new homes increased 4.5% from last year also due to an increase in sales over $750,000.

New home sales are likely to continue their modest rise into 2016 as economic signals remain positive. However, sales and inventory of existing homes need to advance in order to release current home owners to buy a new home. Without this elementary feed to housing demand, the market cannot advance significantly.