Here’s why new home sales have risen along with prices


new home sales today exceed estimates, and new home median sales prices hit an all-time high. What’s going on here? My job is always to be the detective, not the troll, so let’s take a look at today’s data, as here is a consistent theme that I’ve been talking about for some time. Hopefully, I can understand this report, which showed home sales topping estimates with prices still at all-time highs.

Of Census: New Home Sales New single-family home sales for October 2022 registered a seasonally adjusted annual rate of 632,000, according to estimates released jointly today by the US Census Bureau and the Department of Housing and Urban Development. This is 7.5% (±20.8%)* above the revised September rate of 588,000, but 5.8% (±19.6%)* below the October 2021 estimate of 671 000

New home sales haven’t gone anywhere for a few months, and this report also had negative revisions to previous reports. Cancellation rates are rising, that’s true, but census reports don’t adequately account for the loss of those sales. In theory, sales levels are lower than the data shows.

Also, these reports are very uncontrolled from month to month, so we may come back down on next month’s report. However, with all that said, new home sales are historically low today and have been for some time. We are well below the level of the 2000 recession and back to 1996 levels.

When you consider a population of more than 330 million people, that sales number seems much lower than it was in 2000 and 1996, so keep in mind that the current trend is down.

While the actual sales trends may be lower than the report shows, it’s not a significant difference. For now, we are rebounding from the bottom that we had in 2018, which was also historically low.

In 2005, when the real estate bubble peaked in sales at around 1.4 million, we had a clear and aggressive downward trend in sales with cancellation rates rising aggressively. Today we are finding a low base for now, because new home sales are historically low.

I would be careful reading too much into this report or even the current trend. The housing market has been in a recession since June of this year, and we have other data lines that may be more useful in gauging the new home sales sector.

From the Census: Inventory for Sale and Monthly Supply The seasonally adjusted estimate of new homes for sale at the end of October was 470,000. This represents an 8.9 month supply at current sales rates.

My rule of thumb for anticipating builder behavior is based on the average three month supply. This also has nothing to do with the existing home sales market; these monthly supply data are for the new home sales market only.

  • when the supply is 4.3 months, and below, this is a great market for builders.
  • when the supply is 4.4 to 6.4 months, this is a good market for builders. They will be built as new home sales grow.
  • Builders will back off building when supply is 6.5 months and above.

The existing home sales market has 3.3 months of supply, so we’ve had a historic gap between new and existing monthly supply for some time now. However, since I started my economic housing work, this has been my rule of thumb:

The three-month average of the monthly supply in the chart above is 8.6 months, and the main number of monthly supply decreased in the previous report. This line of data has always been key to my work, which has worked well with constructor trust data that has gone into cascading collapse mode, as you can see below. This data line is considered positive when it is above 50 and currently at 33.

We are still in real estate recession territory as builders still have many new homes built and have yet to start building.

For builders, 61,000 New homes have been sold for an amount of 1.2 months of supply, and 298,000 the new homes are still under construction, while 111,000 have not started. The last two lines of data represent 7.7 months left in the data. So as you can see we have a lot of homes that are not on the market since the 8.9 months of supply We can see why builders have finished building new single-family homes, as they still have a lot of work to do (article link).

From the Census: Sales Price The median sales price of new homes sold in October 2022 was $493,000. Median sales price was $544,000.

This part of the new home sales data has confused many people according to the latest reports because it is true that we have hit an all-time high in median new home sales prices. Over the last month of social media, I’ve been trying to get this message across about using median sales price data for the new home sales market. This data line can move a lot one way or the other depending on the change in mixed selling prices. This means that getting a report that has a large number of larger homes sold can skew the data aggressively upward.

Earlier in the year, when we saw a more significant percentage drop in median sales prices, this was due to more smaller homes in the sales mix. Just know that average sales price data should always be taken with a grain of salt.

Another line of housing data reported today was purchase request data, which posted its third straight week of growth, hitting 3% week-over-week. That data is still down 41% year-over-year, but as I’ve said for many months, year-over-year comparisons were going to be very difficult from October to January. This means that we must wait 35%-45% year after year it declines to be the norm. Just in time, since October we have seen year-over-year declines ranging from 39%-46%.

The last time we had three straight weeks of growth in shopping apps was in mid-June. I do note that we are trading from historically low levels, so the bar is down, but after three weeks of growth, and seeing the year-over-year decline is smaller, this is something worth noting. We will continue to monitor this, especially if mortgage rates lower head

I understand that the new home sales reports have been confusing at times this year, but remember that the trend is your friend. We are working from historically low sales levels, and builders are doing everything they can to sell the homes they can while rates are high.

The new home sales industry improved significantly when mortgage rates fell to 5%. However, for now, the monthly supply levels are still too high for builders to start new construction, and we can see that they have a lot of work to do with the homes that are still under construction.

With purchase application data showing some life now that mortgage rates have come down, 2023 is shaping up to be very interesting. For now, I hope you can enjoy the Thanksgiving holiday with your family and eat well!

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