2016 New Home Sales Up 12% Despite Weak December

Sales of newly built, single-family homes fell 10% on a monthly basis in December to a weak 536,000 seasonally adjusted annual rate, according to estimates from the Census Bureau and HUD.

This was a surprisingly low reading for the series. My expectation is that it will be revised higher in the next report. While higher interest rates may have caused a reduction in contract signings (the average 30-year fixed rate mortgage rose from 3.76% at the end of October to 4.01% at the end of December, according to Freddie Mac data), the geographic distribution of the sales data do not fully match this explanation.

For the month, large declines were experienced in the Midwest (41% decline from an elevated November reading) and the South (13% decline). The West was nearly flat (1% decline) and the Northeast experienced a large increase (48% increase over November). An interest rate impact would have had broad national impacts, particularly in the high-cost areas of the country. These regional numbers are not consistent with that explanation. So a more likely cause is data series noise combined with some market timing effects.

As seen on the graph above, the December estimate was off the recent trend, which is provided by the three-month moving average. The weak monthly report pushed the months’ supply number to  5.8. Inventory grew 10% over the course of 2016, rising from 235,000 in December of 2015 to 259,000 in December of 2016.

For the 2016 year, new home sales posted a 12.2% gain over 2015, with 563,000 new home sales compared to 501,000 the year before. However, median new home prices rose in 2016 as well, increasing from $296,400 to $313,200. Pricing will be a key challenge over the course of 2017, given scarcity of lots and labor and growing concerns about building material prices.



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