New Home Sales Spike Most in 25 Years: What's Going On?

New home sales rose a whopping 17.5%, the strongest gain since 1992 and the most homes sold in one month since 2007.

September was a great month, but all of October's gains were revised away, and then some.

October's 6.2% Gain, Now a Loss

The reported 6.2% gain turns out to be a revised 1.7% decline. Fancy that.

Do I have any faith in the numbers this month? Not much. Why should anyone?

Confidence Interval

Please note the confidence interval of +- 10.4%.

The commerce department was within their confidence limit. The October revision was 7.9 percentage points.

Historical Perspective

Why the Surge?

For starters, we are not positive there was a surge, but let's assume it happened. Here are three likely reasons.

  1. Hurricane Impact
  2. Tax Changes
  3. Wealth Effect


The hurricanes destroyed or damaged many homes. That had to create some incentive for people to move. Some of those who did move sold their existing home and bought a new one.

Since sales were up in all regions, hurricanes cannot provide the total answer.

Tax Impact

Existing mortgages are grandfathered in, but the new legislation caps the mortgage deduction. This is likely a minor impact, but some may consider it.

Wealth Effect

The surge in the stock market is likely the most significant force behind the jump. Let's turn to existing home sales for an example.

Lawrence Yun, the NAR's chief economist had this to say about existing home sales:

As evidenced by a subdued level of first-time buyers and increased share of cash buyers, move-up buyers with considerable down payments and those with cash made up a bulk of the sales activity last month. The odds of closing on a home are much better at the upper end of the market, where inventory conditions continue to be markedly better.”

First-time buyers were 29 percent of sales in November, which is down from 32 percent both in October and a year ago.

Mike "Mish" Shedlock

No. 1-10

There are 10,000 people a day hitting 65. Despite what we're told, many of them are choosing to retire, and a good many of them are getting out of high tax and expensive land areas and moving to low tax areas. The number of California plates I see in Colorado is unbelievable, and many of the vehicles they're attached to have a pile of clothes in the back seat. Is it a coincidence that the home prices are insane in Denver today?
I saw the same thing happen in central Pennsylvania (State College, specifically) in the 1990s, when there was a mass migration of older people leaving New York and New Jersey for the tax haven and low cost state -college towns usually rank pretty high on retirement city lists. The young locals were priced out of the market, but it was a pretty good time if you were already a homeowner, being able to cash out equity every few years with a refi.


“Here are three likely reasons :
1.) Hurricane Impact
2.) Tax Changes
3.) Wealth Effect “

People who “see the future as being good” could easily be described as subprime borrowers. They’ve never before been allowed to borrow like they are now.
I favor the three reasons Mish offers. Home buying is a sort of tyranny unto itself. Mind you, I didn’t say home owning, which clings to some degree of virtue.


Buying a home is a judgement about the future. Will my/our future be good enough to commit to buying a home which is a long term responsibility. People see the future as being good. I agree. And as noted by shamrock, Millennials are buying homes now and in the suburbs. They see a better future as well.


There might be an actual tightening of credit and if you need a mortgage better go now. Others may use these new homes as rental properties the new tax cut laws give rentals a lift. Reallocating always looks like real activity while it is just churn. Existing housing is gaining faster than new homes, and new homes are just catching up.


All kinds of statistics are being skewed. This always happens at the height of the speculative bubble when the froth makes it hard for statisticians to keep up