New home sales bounced this month towards the top end of the Econoday range of estimates.
A bounce was widely expected after last month’s 11.4% contraction.
The big surprise was a surge in median sales price.
Housing is back on track following Wednesday’s strength in existing home sales and today’s very solid gain for new home sales which rose 2.9 percent to a 610,000 annualized rate that is near Econoday’s top estimate. The report also includes a sharp 24,000 upward revision to April which now stands at 593,000.
The real surprise in the report is enormous strength in selling prices. The median surged 11.5 percent in the month to $345,800. The year-on-year increase is 16.8 percent which, however, is nearly double the 8.9 percent gain in actual sales.
This price traction is related not only to demand but also to supply of new homes which is very tight. New homes did move into the market during the month, up 1.5 percent to 268,000 units, but sales relative to supply are unchanged at only 5.3 months.
The two focused regions for home builders, the West and South, are the strengths in May. Sales in the West jumped 13 percent to a 162,000 rate while sales in the South rose 6.2 percent to 360,000.
But sales in the Midwest and Northeast, which are small regions for home builders, fell sharply with double-digit declines, down a monthly 11 percent for the Northeast to 33,000 and down 26 percent for the Midwest to 55,000.
And this report does come with a warning — sample sizes are limited and wild revisions are routine. Housing data have been up and down this year but this report, backed by May’s gain in existing home sales, points to a mid-quarter sales bounce for the sector, one that underscores high levels of employment and stimulus from low mortgage rates.
Recent History
New home sales are perhaps the most volatile of any economic report, swinging from a 621,000 annualized rate in March down to a 569,000 rate in April. Econoday’s consensus for May is right in the middle at 590,000 in a result that, when compared with the 3-month average of 606,000, would be healthy though still slightly below the recent trend.
Prices Crush Previous Record
Mortgage News Daily reports New Home Sales Rebound; Prices Crush Previous Record.
The median sales price in May was $345,800 and the average was $406,400. A year earlier the respective prices were $296,000 and $350,000. This crushes the previous record of $332,700 and also represents a record increase in the year-over-year change (+16.8% vs May 2016’s median price of $296,000).
New home sales in the Northeast were down 10.8 percent from April and unchanged from the previous May. The Midwest also had substantial declines, 25.7 percent month-over-month and 23.6 percent on an annual basis.
The other two regions offset those losses, with sales up 6.2 percent from the previous month in the South which also posted a year-over-year gain of 15.0 percent. The West had 13.3 percent more activity than in April, 14.1 percent more year-over-year.
At the end of May there were an estimated 265,000 new homes available for sale (unadjusted), 60,000 of which are ready for occupancy. The total is an increase of 6,000 from the previous month. This is estimated to be a 5.3-month supply at the current sales pace, unchanged from April. The median time that homes have been on the market is 3.1 months, down from 3.7 months in April.
New Home Sales
To put the bounce in sales into perspective, new home sales in April of 1963 were 605,000. In July of 1963, they were 665,000.
New Home Sales vs Price
The slope of prices vs sales tells it all. Most potential buyers cannot afford houses.
Mike “Mish” Shedlock
Rising capital gains, not income, are quite important to over leveraged economy. Have to keep those LTVs in good shape! Keeps the borrowing going! Cash flow comes from the credit market not the economy anyway! CB’s can never let asset prices fall despite their quite public concern on asset price bubble. Too risky to end the debt super cycle.
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“CB’s can never let asset prices fall despite their quite public concern on asset price bubble. Too risky to end the debt super cycle.”
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Central banks can only delay the burst, not deny.
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A market move that swamps the developed market CB’s would be not only impressive but essentially be a re-boot of the allocation mechanism as we know it. They can still use neg rates, QE combined with fiscal thrust and monetization. The path we are on has no end but when does it bust? I have no idea but I do expect it to bust.
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The only way to delay the bust is to maintain bubble growth. So they not only delay. They make is worse. Once growth stops, after a while, people panic and start heading for the exits.
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I completely agree just wish I knew the catalyst that tips it over. Inflation? Technologically driven deflation? What breaks the back of the corporate bond market? That is what I see as the keystone for all asset prices now. What breaks the corporate bond market?
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Seems like a pretty obvious sign that the Fed should be increasing rates. This is getting out-of-hand.
This is 7x US Household income.
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As far as I know privatize the gains and socialize the pain remains in force. Why be responsible?
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When you look at new home sales the overall cycle going back to 1970 looks like a Sine Wave with roughly equal positive and negative amplitudes around the 600,000 unit level. That is until you get to the 2008 to 2010 time frame. Projecting that cycle suggest we have much more more time to spend below 600,000 to offset the 2008 peak.
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“The median sales price in May was $345,800”
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The mortgage calculator sez PITI (with 10% down payment + pmi) a little over $2K / month with 30yr mortgage.
per Census:
Median household income was
$56,516 in 2015,
DTI for this alone ~ 42%
And this is supposed to work??
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The median US household doesn’t buy the median US house.
The median US household drifts between living on the street, and in slave quarters down on the Goldman plantation. While the median of the 610,000 houses sold this month, went to the same median leech as the median of the 593,000 houses sold the month before.
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It must be rich people are swapping homes with each other while the poor are staying put.
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Not forever.
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The typical first time home buyer makes $72,000 a year. Assuming 10% downpayment, the total monthly housing costs would be less than 35% of take home pay. That’s affordable.
http://www.cnbc.com/2017/04/25/heres-how-much-money-the-average-first-time-home-buyer-makes.html
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You are answering a different question.
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when do you think prices will normalize? Does it /will it have any correlation with the stock market in terms of tempering or decline?
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Mish: I am not sure what you are trying to prove. New home sales seems to be perfectly balanced to the historical average, and even better people are able to pay for them. No sign of either bubble or recession at all.
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Think about the population in 1963 vs population today, prices in 1963 vs prices today, student debt etc and tell me things are “balanced”.
Perhaps you are writing Yellen’s speeches!
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“and even better people are able to pay for them.”
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Ha … no way I’m allowing you to make that statement without showing your math.
I’ll be waiting – eagerly – for your response.
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Math of what ? Any market has a clearing price. if someone buys it means that they are able to pay for it. That is the pure definition of a market.
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So house prices are a simple combination of inflation plus GDP growth when measured by sq ft.
The inflation adjusted cost/sq (1973): $120 +- 5
The inflation adjusted cost/sq (2015): $120 +- 5
Average for 1973-2015: $116
Let’s keep our knickers on.
Source:
http://www.aei.org/publication/new-us-homes-today-are-1000-square-feet-larger-than-in-1973-and-living-space-per-person-has-nearly-doubled/
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Sorry
“So house prices are a simple combination of inflation plus GDP growth when measured by sq ft.”
should read
“So house prices are a simple reflection of inflation when measured by sq ft.”
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Also we’ve chosen to double our living space per person at no extra cost. If anything housing costs per person per sq ft. have halved.
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Also we’ve chosen to double our living space per person at no extra cost. If anything housing costs per person per sq ft. have halved.
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And we have AC standard and upgraded appliances since the 1970’s.
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Reblogged this on World4Justice : NOW! Lobby Forum..
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