For a “Quick ‘n Easy” read, just review the labeled white boxes, then skip to my “Easy Take” summary at the end. You can review any charts/graphs afterward. I want to make sure no one is intimidated by the length of my posts, even though I’m trying to making them easy …
I’m continuing with a feature called “Easy Pod” – a collection of indicators that help portray the current status of something. In this post, that something is housing and real estate. Let’s first review a few key concepts that are important to know about housing and real estate: (you can skip to below the first horizontal line if you’ve read this Easy Pod in the past)
There are a number of indicators that describe what’s going on in housing and real estate, and there are even some people who combine these indicators into one number (an index) to give a summary. In this “Easy Pod” I will show you indicators and indices that I like to follow. Check back regularly for updates.
Indicator: New Home Sales | NEGATIVE
Easy Intro: None yet | Link to Source: Click here | Latest Date This Info Represents: November 2011
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Quick ‘n Easy
Every new home that is built and sold adds to the Gross Domestic Product (GDP), helping our economy grow. Unfortunately, in November 2011, new homes were selling at an extremely low rate. Fortunately, not too many new homes are being built so that the ones in inventory (still on the market) can get cleared out at a normal pace. |
Courtesy: CalculatedRiskBlog.com
Easy Description: Statistics that tell us how many new single-family homes (basically a building for one family, not apartments or condos) were sold. It also tells us about the selling price of those homes and the unsold inventory of new homes (waiting to be sold).
Latest Reading: If sales in November 2011 were to continue at that rate for a whole year, there would be 315,000 new homes sold. This “annualized” rate is 1.6 percent higher than last month’s rate, and it is 9.8 percent above the rate from the same month last year. The median sales price (half of homes sold for less than this amount, the other half sold for more) was $214,100. That is 2.5 percent lower than the median price one year ago. There were 158,000 new homes still for sale (inventory), so at the current pace it would take about 6.0 months to sell the remainder.
Also, take a look at my Easy Trends analysis of New Homes Months of Supply thru November 2011 to see where the trends are headed.
Implications: The pace of new home sales has largely been moving sideways for over a year. The “6.0 months of inventory” part is key to understanding that home builders have done a pretty good job of adjusting to market conditions. Because so few homes are being sold, they have been dropping the number of homes they build way down, which means that supply is decreasing and price isn’t decreasing as much. (Quick refresher on “supply and demand” – when something has a bigger supply than there is a demand for it, sellers are forced to lower the price so that buyers will have a greater willingness to buy it.) We are at incredibly low levels of new home construction, which is why that 6.0 months figure is very close to historical averages. Before the housing boom, the typical months of inventory level was around 6 months. At the 6 months level, prices tend to be stable.
So, what happens if new homes start selling again? Builders will start making more homes, which will push up supply just enough to keep up with the new demand so that prices don’t move too much in one direction or the other. The kind of massive price increases we saw in the housing boom were unsustainable, just as massive price decreases from this point would have to be temporary, too. Market forces will always push things toward a “healthy” equilibrium.
But regardless of the fact that the inventory number is looking pretty decent, these number of sales (315,000 annualized rate) are just awful. And when fewer homes are being sold, that’s less economic growth. The sale of a new home is just like the sale of a car, television or clothes – someone made something and sold it, which adds to the GDP. What we’d like to see from here is a continued increase in new home sales numbers while keeping that months of inventory right around the 6 month mark. That would mean the housing market is on its way to greater positive contributions to the GDP report without having any false imbalances in the system.
Easynomics Rating Methodology: The long term average is about 672,000 new homes sold per year. I’d like to see numbers that are within 15 percent of that average. Therefore, I will give this indicator a rating based on the average of the last three months: Above 772,000 is “positive”; below 571,000 is “negative”; anything between is “neutral.”
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