A few Comments on New Home Sales

1) January is seasonally the weakest month of the year for new home sales, so January has the largest positive seasonal adjustment. Also this was just one month with a sales rate over 400 thousand - and we shouldn't read too much into one month of data. But this was the highest level since July 2008 and it is clear the housing recovery is ongoing.

2) Although there was a large increase in the sales rate, sales are still near the lows for previous recessions. This suggest significant upside over the next few years (based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years).

3) Housing is historically the best leading indicator for the economy, and this is one of the reasons I think The future's so bright, I gotta wear shades. Note: The key downside risk is too much austerity too quickly, but that is a different post.

Note: For 2013, estimates are sales will increase to around 450 to 460 thousand, or an increase of around 22% to 25% on an annual basis for the 367 thousand in 2012.

And here is another update to the "distressing gap" graph that I first started posting over four years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to start to close over the next few years.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through January. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Click on graph for larger image.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. The flood of distressed sales kept existing home sales elevated, and depressed new home sales since builders weren't able to compete with the low prices of all the foreclosed properties.

I don't expect much of an increase in existing home sales (distressed sales will slowly decline and be offset by more conventional sales). But I do expect this gap to close - mostly from an increase in new home sales.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

Earlier:
• New Home Sales at 437,000 SAAR in January
• New Home Sales graphs