New Home Sales Down 7.8%: Six Reasons Sales Can't Break Out

The consensus estimate on new home sales missed the mark badly but there were positive revisions in two prior months.

The consensus Econoday estimate was 640,000 new home sales in January but the economists were off by a mile.

Sales of new homes slowed but not all the data in January's new home sales report are negative. New home sales came in at a much lower-than-expected 593,000 annualized rate in January though, in offsets, the two prior months are revised a net 25,000 higher. And badly needed supply moved into the market, up a monthly 2.4 percent to 301,000 units for sale. On a sales basis, supply jumped above 6 months to 6.1 months vs 5.5 and 4.9 months in the two prior months.

But sales in January were definitely soft as the rate in the South, which is by far the largest housing region, fell 14.2 percent to a 301,000 rate with the Northeast, which had been coming on strong, down 33.3 percent to only a 24,000 rate. Year-on-year, sales in the West are doing best at plus 33.1 percent with the South down, however, a steep 10.9 percent. Overall, new home sales are down a yearly 1.0 percent.

Prices are another negative in the report, down 4.1 percent for the median to $323,000 though the yearly rate is still positive at 2.5 percent.

The new home market surged into the end of last year but understandably slowed in January. Yet supply, that is the lack of it, is an overwhelming issue for the market and today's details, including gains underway for permits and starts which are growing in the mid-to-high single digits, are positives for the outlook.

Down Again

New home sales fell again in January, although not quite as sharply as in December. Stalling sales in recent months has now dragged the annual rate below that of a year earlier.

There was a slight increase in inventory, from 294,000 units for sale at the end of December to 301,000 at the end of the current period. That brought the estimated inventory up into what is considered a balanced market, at a 6.1-month supply. The supply was estimated at 5.5 months in December. Of the available homes, only 64,000 are ready for occupancy. Completed homes have a marketing time of 3.3 months, unchanged from December.

New Home Sales at 1963 Level

To put things into perspective, new home sales are at or below where there were for much of 1963.

Year-over-year sales are down 1%, but the trend is a slow increase.

What's Changed?

Debt Attitudes: The attitudes of millennials toward home ownership has changed dramatically. Many saw their parents or friend's parents argue over debt and loses their homes.

Mobility Attitudes: In the 60's it was common to stay at one job for long periods of time. Not any more.

Attitudes Towards having Kids: Attitudes towards family formation have changed. One reason to have a home was to buy into a neighborhood with a good school. If you don't plan on having kids, or you do plan on moving around, a big reason for home ownership flew out the window.

Student Debt: Many millennials are mired in student debt. Potential partners are also mired in debt.

Cost: New homes are not affordable. Thank the Fed for asset bubbles.

Demographics: Millennials have aging parents. Many have moved back in with their parents to help take care of them. They will inherit their parent's homes.

Mike "Mish" Shedlock

Comments
No. 1-7
millynical
millynical

You nailed it, I couldn't believe how little this was talked about during the reform process. However, it will be years before it leaves a true mark on millennial's. Many have embraced the lie that housing is an investment. They tell others they are throwing away money on rent yet cannot tell you how much interest they pay per year, their real estate taxes, or how much equity they have in their home.

niceconstable
niceconstable

All reasons given are true. It is good that the uptrend has not been broken to the downside.

Snow_Dog
Snow_Dog

“Cost: New homes are not affordable. Thank the Fed for asset bubbles.”

Ahem! ....that’s PRE-bubble to you, pal. I’m reporting you to Mr. Dalio at once.

theplanningmotive
theplanningmotive

Home sales declining, car sales declining, smartphone sales declining, is anything other than healthcare going up. Should anyone be informing Wall Street

AWC
AWC

Phoenix vs. Chicago? Detroit vs. Charlotte? January 2017 vs. January 2018? Location, location, location. Domestic migration will play a large part in future home sales and prices.

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