New Home Sales Rise But With Underlying Variation


According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, sales of new homes rose by 4.0 percent over the month of March to reach a seasonally adjusted annual rate of 694,000. Year-to-date, covering the first quarter of 2018, the total number of new homes sold is 10.3 percent ahead of its pace over the first three quarters of 2017. The increase in new home sales over the month also reflects a 7.9 percent upward revision in sales over February from an initial estimate of 618,000, illustrating the volatility in the data and subsequent revisions.

The growth in new home sales over the month masks clear variation. Sales of new homes fell in the Northeast, 54.8 percent, and the Midwest, 2.4 percent, but rose in the West, 28.3, percent and in the South, 0.8 percent. Similarly, comparing the number of sales in March 2018 with March 2017 tells a similar story. The variation in the change of new home sales over the month, growth in the West and the South but declines in the Northeast and Midwest, are consistent with recent documentation of relative growth patterns in population, employment, and single-family construction across these areas of the country. It suggests that relatively faster growth in economic fundamentals is contributing to the stronger growth in new home sales in the West and the South, possibly overcoming the short-term adverse impact of the Tax Cuts and Jobs Act on housing demand.

The number of homes available for sale was flat at 301,000 over the month of March. Since the number of new home sales over the month rose, but the inventory of new homes for sale was flat, then the month’s supply, which measures the number of months it would take to exhaust the inventory of homes at the current sales pace fell. Over the month of March the months’ supply fell by 3.7 percent to 5.2 months. Readings below 6.0 months are typically associated with low inventory. After falling through the winter months of January and February median price of new homes sold rose 3.5 percent to $337,200 in March.

Viewing sales by stage of construction is an alternative angle for interpreting the release. Disaggregating the data in this way indicates that the strongest monthly sales growth occurred in homes not started, as opposed to homes under construction or homes completed.

Over the month of March, the number of sales of homes not started rose by 11.3 percent to a seasonally adjusted annual rate of 216,000, while sales of homes under construction rose by 2.5 percent to 248,000. Sales of new homes that were completed were flat falling from 231,000 to 230,000.

Similarly, the number of homes for sale that were also not yet started rose by 10.7 percent to 62,000 while inventory of homes under construction fell by 2.7 percent to 177,000 and the inventory of homes completed was flat, falling from 63,000 to 62,000.

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