Browsing Posts tagged new homes

New Residential Homes Sales and Inventory Months of Supply – Easy Trends (thru June 2014)

Sales of new residential homes contributes to the GDP, and the level of supply can indicate something about prices.  I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for an indicator (in this one, it is new residential homes sales and inventory) and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis.  Please visit my latest new residential homes inventory months of supply trend analysis for more info.

Quick ‘n Easy

For new residential homes reports, there are two key things to look at: 1) number of homes sold and 2) inventory of homes for sale.  When there are too many new residential homes still left unsold (inventory) on the market, it usually means that prices will be dropping because supply is greater than demand.  A good way of measuring the inventory is to calculate how long it would take that inventory to sell at the current pace of sales.  The normal level of supply for new residential homes is a little less than 6 months.

For new residential homes reports, there are two key things to look at: 1) number of homes sold and 2) inventory of homes for sale.  We care about the number sold because each one contributes to the overall economy (builders get paid, brokers get paid, companies that made the raw materials get paid, etc).  We care about inventory because when there are too many new residential homes still left unsold (inventory) on the market, it usually means that prices will be dropping because supply is greater than demand.  The opposite is true if there is very low inventory.  A good way of measuring whether current levels of new residential homes are too high or too low is to calculate how long it would take the current inventory to sell at the current annual pace of sales.  For example, if there are 150,000 unsold new residential homes with the most recent report saying the annual pace of sales was 225,000, here’s what the calculation would look like:

Example:
225,000 new residential homes sold per year
divide by 12 to get 18,750 new residential homes sold per month
150,000 unsold homes divided by 18,750 sold per month = 8 months supply

Here’s a graph of the New Residential Homes Sales followed by Inventory Months of Supply from Calculated Risk:

New Residential Homes Sales June 2014 - Calculated Risk

Courtesy: CalculatedRiskBlog.com

 

New Residential Homes Inventory Months of Supply June 2014 - Calculated Risk

Courtesy: CalculatedRiskBlog.com

 

New Residential Homes Trends and Projections

Below, I will discuss whether the indicators are currently in a trend, when the last confirmed trend was and what that says about projecting the next data points to be released. I usually start my trend analysis from about three years ago.

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Economic Indicators Roundup (July 21, 2014)

Economic indicators are everywhere, so this is kind of like a dashboard that I like to follow.  For each indicator, I will try to give you a brief description, the latest reading and what I understand to be its implications.  For simplicity, I will assign each a rating of positive, neutral or negative.  For the economic indicators, I will denote in each one’s section how I decide which rating to give it.  At the end, I assign an overall rating, but this is just to guide me in my takeaway of where things stand.  It’s not scientifically rigorous or anything.

  • Positive - indicative of a healthy, growing economy.
  • Neutral - indicative of a slow or no growth economy but not a contracting (recession) economy.
  • Negative - indicative of a shrinking economy or recession.

(NOTE: 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 …)


Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating (change from previous roundup)
ADS Business Conditions Index Positive
Bloomberg Financial Conditions Index Positive
Daily Consumer Leading Indicators Negative
Citigroup Economic Surprise Index Neutral
Employment Trends Index Positive
Chicago Fed National Activity Index Neutral
Easynomics Real Estate Price Stability Index Positive
Easy Trends Dashboard   (min/max -3 to +3) +2.67 = Definitely moving in a positive direction, with hardly any unconfirmed trends or off-trend readings

NOTE: You may be reading an outdated analysis.  Please visit my latest economic indicators roundup.



Economic Indicator: ADS Business Conditions Index   |   POSITIVE
Easy Intro to ADS Business Conditions Index   |   Link to Source   |   Latest Date This Info Represents: July 12, 2014

Quick ‘n Easy

A combination of several key indicators of business conditions suggests, with high confidence, that at the end of March 2014 (most recent date for which there is data for all components of the index), conditions were above average (+0.311).  As of about a week and a half ago, it suggested, with low confidence, that current conditions were slightly above average (+0.173), historically speaking.  The index suggests that economic activity took a temporary dive in late 2013 before bouncing back quickly to levels slightly above historical averages.

Economic Indicators - ADS Business Conditions Index Jul 12 2014

Source: PhiladelphiaFed.org

Easy Description: Combines several indicators together to describe current business conditions.  A value above zero means that conditions are better than average, but below zero means worse than average.

Latest Readings:

July 12, 2014: Positive (+) 0.173 (includes weekly unemployment figures and maybe one other indicator)

One month prior: Positive (+) 0.165
One quarter prior: Positive (+) 0.197

The most recent date for which there is data for all components of the index is end of March 2014, when conditions were above average (+0.311).

Implications: After conditions took a hit starting mid-November 2013, we never went into a recession-type shrinking phase, and conditions quickly bounced back up to above average levels. Preliminary data suggests that conditions have been hovering around slightly-above-average levels.

Additional Info: This index provides confident readings about the past when all of the indicators have been collected (everything to the left of the left-most vertical line).  The readings in between the two vertical lines are somewhat less confident because they include some, but not all, of the indicators.  And the latest reading always falls to the right of the right-most vertical line and includes only a couple of indicators.

Easynomics Rating Methodology: For this index, I will use the very latest reading and rate anything between zero and minus (-) 1.00 as “neutral” – anything above or below that will be rated “positive” or “negative” respectively.

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Economic Indicators Roundup (July 14, 2014)

Economic indicators are everywhere, so this is kind of like a dashboard that I like to follow.  For each indicator, I will try to give you a brief description, the latest reading and what I understand to be its implications.  For simplicity, I will assign each a rating of positive, neutral or negative.  For the economic indicators, I will denote in each one’s section how I decide which rating to give it.  At the end, I assign an overall rating, but this is just to guide me in my takeaway of where things stand.  It’s not scientifically rigorous or anything.

  • Positive - indicative of a healthy, growing economy.
  • Neutral - indicative of a slow or no growth economy but not a contracting (recession) economy.
  • Negative - indicative of a shrinking economy or recession.

(NOTE: 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 …)


Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating (change from previous roundup)
ADS Business Conditions Index Positive
Bloomberg Financial Conditions Index Positive
Daily Consumer Leading Indicators Negative
Citigroup Economic Surprise Index Neutral
Employment Trends Index Positive
Chicago Fed National Activity Index Neutral
Easynomics Real Estate Price Stability Index Positive
Easy Trends Dashboard   (min/max -3 to +3) +2.67 = Definitely moving in a positive direction, with hardly any unconfirmed trends or off-trend readings

NOTE: You may be reading an outdated analysis.  Please visit my latest economic indicators roundup.



Economic Indicator: ADS Business Conditions Index   |   POSITIVE
Easy Intro to ADS Business Conditions Index   |   Link to Source   |   Latest Date This Info Represents: July 5, 2014

Quick ‘n Easy

A combination of several key indicators of business conditions suggests, with high confidence, that at the end of March 2014 (most recent date for which there is data for all components of the index), conditions were slightly above average (+0.217).  As of about a week and a half ago, it suggested, with low confidence, that current conditions were slightly above average (+0.250), historically speaking.  The index suggests that economic activity took a temporary dive in late 2013 before bouncing back quickly to levels slightly above historical averages.

Economic Indicators - ADS Business Conditions Index Jul 5 2014

Source: PhiladelphiaFed.org

Easy Description: Combines several indicators together to describe current business conditions.  A value above zero means that conditions are better than average, but below zero means worse than average.

Latest Readings:

July 5, 2014: Positive (+) 0.250 (includes weekly unemployment figures and maybe one other indicator)

One month prior: Positive (+) 0.225
One quarter prior: Positive (+) 0.154

The most recent date for which there is data for all components of the index is end of March 2014, when conditions were slightly above average (+0.217).

Implications: After conditions took a hit starting mid-November 2013, we never went into a recession-type shrinking phase, and conditions quickly bounced back up to above average levels. Preliminary data suggests that conditions have been hovering around slightly-above-average levels.

Additional Info: This index provides confident readings about the past when all of the indicators have been collected (everything to the left of the left-most vertical line).  The readings in between the two vertical lines are somewhat less confident because they include some, but not all, of the indicators.  And the latest reading always falls to the right of the right-most vertical line and includes only a couple of indicators.

Easynomics Rating Methodology: For this index, I will use the very latest reading and rate anything between zero and minus (-) 1.00 as “neutral” – anything above or below that will be rated “positive” or “negative” respectively.

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Economic Indicators Roundup – Abridged Version (July 7, 2014)

Economic indicators are everywhere, so this is kind of like a dashboard that I like to follow. For simplicity, I will assign each a rating of positive, neutral or negative. At the end, I assign an overall rating, but this is just to guide me in my takeaway of where things stand.  It’s not scientifically rigorous or anything.

  • Positive - indicative of a healthy, growing economy.
  • Neutral - indicative of a slow or no growth economy but not a contracting (recession) economy.
  • Negative - indicative of a shrinking economy or recession.

Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating (change from previous roundup)
ADS Business Conditions Index Positive
Bloomberg Financial Conditions Index Positive
Daily Consumer Leading Indicators Negative
Citigroup Economic Surprise Index Neutral
Employment Trends Index Positive   (June index to be released later this morning – should be “positive”)
Chicago Fed National Activity Index Neutral
Easynomics Real Estate Price Stability Index Positive
Easy Trends Dashboard   (min/max -3 to +3) +2.67 = Definitely moving in a positive direction, with hardly any unconfirmed trends or off-trend readings

NOTE: You may be reading an outdated analysis.  Please visit my latest economic indicators roundup.


Easy Trends Dashboard

Updated: July 3, 2014
Consensus Score: +2.67   (vs +2.67 one week ago)
Interpretation:  Definitely moving in a positive direction, with hardly any unconfirmed trends or off-trend readings

Indicator Trend Score* (change from last roundup)
Employment Report +3
Existing Homes Sales and Inventory Months of Supply +3
Factory Orders +3
GDP +2
Industrial Production +3
New Residential Homes Sales and Inventory Months of Supply +2
Personal Income Levels +3
Residential Investment +2
Unemployment Claims +3

*Trend Score Definitions:

  • Confirmed trend with no recent readings that are off trend: +3 (good direction) or -3 (bad direction)
    • For each consecutive recent reading that was off trend in the opposite direction, I move the score by one point in the direction of zero
  • Unconfirmed trend: +1 (good direction) or -1 (bad direction)
  • No trend that has at least 50 percent confidence: 0

Easy Take

No ratings changed over the last week, assuming that the Employment Trends Index released this morning remains strong. The overall consensus thus remains “positive” again.

The Easy Trends Dashboard is still in outstanding shape, same as last week after a very strong jobs report last week.  The overall average for the trends dashboard suggests that indicators I follow are definitely headed in the right direction.

We currently have 4 positive, 2 neutral and 1 negative economic indicators.  Using a scale of positive=3, neutral=2 and negative=1, this yields an average rating of 2.43 out of 3.00 (versus 2.43 one week ago), which falls in the upper third of the possible range.  In other words, my set of economic indicators combine into a “positive” rating.  The consensus view of the above indicators is that economic conditions are consistent with positive growth at or above the historical average rate.  Trends suggest that indicators are definitely headed in a good direction.

Disclaimer: My dashboard isn’t really a group of similar indicators, so we can’t say that it represents any one particular thing.  For example, it’s not geared strictly toward predicting the future of the economy like a leading indicators dashboard.  It’s not like a coincident indicator dashboard that focuses on how things are right this second.  It’s just a bunch of things I like to follow, interpreted in a way to be consistent with either economic growth or shrinkage.  I would just guess that if the indicators I most like to follow start trending one way or the other, there is a good chance the economy is going that way, too.

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Housing and Real Estate – Easy Pod (July 2, 2013)

Housing and real estate were at the center of the most recent financial crisis, so it should be obvious why it is an important part of our economy …

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 …

NOTE: You may be reading an outdated analysis.  Please see my latest Housing and Real Estate Easy Pod for more info.

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 two basic kinds of real estate, residential and non-residential.  Residential refers to places where people live.  Non-residential includes things like businesses, office buildings or warehouses.
  • For residential real estate (this is what we’ll refer to as “housing”) there are new homes and existing homes.  The difference should be fairly obvious.  New homes are looking for their first owner, while existing homes already have an owner.
  • “Inventory” is how many of something you have available to sell.  When we talk about the current inventory of new homes, we are talking about how many new homes are available to be sold.  When inventory is high, that makes it more likely that prices will be lower.  Remember, it’s the “supply and demand” basics here.  If you have too much of something, people will pay less for it.  The way we try to measure inventory in housing is by comparing how many unsold homes there are versus how fast homes are selling.  That’s why you’ll see things like “8 months inventory.”  It means that, at the current rate of home sales, it would take 8 months to get rid of the extra inventory.
  • Sales levels and prices are definitely related to one another.  If you see home sales slowing down, it means that homes are not in as much demand, so chances are good that prices will go down.  You have to look at the combination of housing prices, sales and inventory to get a good feel for what’s going on.

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.


Quick Summary

Previous Easy Pod: November 1, 2013

Indicator (Click for details – only works if full article is open) Current Rating (change since last Easy Pod)
New Home Sales Negative
Housing Starts Negative
NMHC Quarterly Survey of Apartment Market Conditions Positive
NAHB Housing Market Index (HMI) Neutral
Easynomics Real Estate Price Stability Index Positive




Indicator: New Home Sales   |   NEGATIVE
Easy Intro: None yet   |   Link to SourceClick here   |   Latest Date This Info Represents: May 2014

Quick ‘n Easy

Every new home that is built and sold adds to the Gross Domestic Product (GDP), helping our economy grow.  Unfortunately, in May 2014, new homes were selling at an extremely low rate.  The good news is that the trend has generally been pointed upward since early 2011.  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.

New Residential Homes Sales May 2014 - FRED

Source: StLouisFed.org

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 May 2014 were to continue at that rate for a whole year, there would be 504,000 new homes sold.  This “annualized” rate is 18.6 percent higher than last month’s revised rate, and it is 16.9 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 $282,000.  That is 6.9 percent higher than the median price one year ago.  There were 189,000 new homes still for sale (inventory), so at the current pace it would take about 4.5 months to sell the remainder.

Also, take a look at my latest new residential homes inventory months of supply trend analysis to see where the trends are headed.

Implications: After hitting an interim low of 270,000 in Feb 2011, the pace of new home sales has been generally rising (with some big ups and downs). We’re still a long way off from a normal level, but we appear to be on the mend.

The “4.5 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 were being sold after the big recession hit, they dropped the number of homes they built way down, which means that supply decreased and prices didn’t decrease 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 were at very low levels of new home construction, which is why that inventory months of supply figure is not way above historical averages anymore.  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 about the fact that new homes are generally being sold more often these days than during the housing crash?  Builders have started making more homes, which will eventually push up supply 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 onward 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, this number of sales (504,000 annualized rate) is still way too low.  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’ annual selling pace: Above 772,000 is “positive”; below 571,000 is “negative”; anything between is “neutral.”

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Economic Indicators Roundup (June 30, 2014)

Economic indicators are everywhere, so this is kind of like a dashboard that I like to follow.  For each indicator, I will try to give you a brief description, the latest reading and what I understand to be its implications.  For simplicity, I will assign each a rating of positive, neutral or negative.  For the economic indicators, I will denote in each one’s section how I decide which rating to give it.  At the end, I assign an overall rating, but this is just to guide me in my takeaway of where things stand.  It’s not scientifically rigorous or anything.

  • Positive - indicative of a healthy, growing economy.
  • Neutral - indicative of a slow or no growth economy but not a contracting (recession) economy.
  • Negative - indicative of a shrinking economy or recession.

(NOTE: 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 …)


Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating (change from previous roundup)
ADS Business Conditions Index Positive   (Upgrade)
Bloomberg Financial Conditions Index Positive
Daily Consumer Leading Indicators Negative
Citigroup Economic Surprise Index Neutral
Employment Trends Index Positive
Chicago Fed National Activity Index Neutral
Easynomics Real Estate Price Stability Index Positive
Easy Trends Dashboard   (min/max -3 to +3) +2.67 = Definitely moving in a positive direction, with hardly any unconfirmed trends or off-trend readings

NOTE: You may be reading an outdated analysis.  Please visit my latest economic indicators roundup.



Economic Indicator: ADS Business Conditions Index   |   POSITIVE   (Upgrade)
Easy Intro to ADS Business Conditions Index   |   Link to Source   |   Latest Date This Info Represents: June 21, 2014

Quick ‘n Easy

A combination of several key indicators of business conditions suggests, with high confidence, that at the end of March 2014 (most recent date for which there is data for all components of the index), conditions were slightly above average (+0.205).  As of about a week and a half ago, it suggested, with low confidence, that current conditions were slightly above average (+0.124), historically speaking.  The index suggests that economic activity took a temporary dive in late 2013 before bouncing back quickly to levels slightly above historical averages.

Economic Indicators - ADS Business Conditions Index June 21 2014

Source: PhiladelphiaFed.org

Easy Description: Combines several indicators together to describe current business conditions.  A value above zero means that conditions are better than average, but below zero means worse than average.

Latest Readings:

June 21, 2014: Positive (+) 0.124 (includes weekly unemployment figures and maybe one other indicator)

One month prior: Positive (+) 0.143
One quarter prior: Positive (+) 0.298

The most recent date for which there is data for all components of the index is end of March 2014, when conditions were slightly above average (+0.205).

Implications: After conditions took a hit starting mid-November 2013, we never went into a recession-type shrinking phase, and conditions quickly bounced back up to above average levels. Preliminary data suggests that conditions have been hovering around slightly-above-average levels.

Additional Info: This index provides confident readings about the past when all of the indicators have been collected (everything to the left of the left-most vertical line).  The readings in between the two vertical lines are somewhat less confident because they include some, but not all, of the indicators.  And the latest reading always falls to the right of the right-most vertical line and includes only a couple of indicators.

Easynomics Rating Methodology: For this index, I will use the very latest reading and rate anything between zero and minus (-) 1.00 as “neutral” – anything above or below that will be rated “positive” or “negative” respectively.

continue reading…

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