New Home Sales Plummet in December

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • Pace of contracts for new home sales PLUNGED 9.3 percent in December to 625,000 (seasonally Adjusted Annual Rate);
  • Unsold inventory ROSE 11,000 to 295,000
  • Median price of a new home ROSE $500 from November to $335,400;
  • Year-year the median price of a new home was up $8,400 (2.6 percent)

Trends:

  • The (percentage) drop in new home sales (contract signings) was the steepest in 16 months (August 2016: down 9.6 percent from the previous month);
  • The pace of new home sales has fallen month-month in four of the last six months, but remains up year-year;
  • Sales fell in all four census regions, led by the South where contract signings dropped 36,000 the steepest month-month decline since March 2015;
  • The inventory of unsold homes is at its highest level since April 2009 (300,000) the depth of the Great Recession;
  • The increase in the inventory of unsold homes was the steepest one-month climb since April 2006;
  • Median price of a new single-family home is at its highest level since Census-HUD began tracking in 1963.

Data Source: Census Bureau and Department of Housing and Urban Development 

Image result for new home sales

The National Association of Home Builders might want to rethink its ringing endorsement of the new tax law.

Heading into the first months of the new law new home sales fell off the table in December with forecasts suggesting the new law will cut deeply into all home sales.

Indeed, the National Association of Realtors (NAR) Wednesday reported a sharp decline in December sales, down 3.6 percent from November. The NAR report covered closings in December. NAR will report on December contract signings next week.

The NAR’s Pending Home Sales Index (PHSI) doesn’t move in lockstep with the new home sales report, if anything the new homes report is slightly more optimistic. In the last 12 months, the new home sales report showed negative month-month changes five times while the PHSI was down month-month seven time. In the previous 12 months, the PHSI dropped month-month five times while new home sales fell month-month four times.

Even though the two reports might be considered apples and oranges, there is a pattern developing which could be exacerbated as the reality of the revised tax code begins to sink in. In sum, the new tax provisions removed or curtailed two major incentives for home buying: capping the amount of mortgage interest and property taxes which can be deducted.

Nonetheless home builders, the monthly Housing Market Index (HMI) generated by NAHB remain confident. The HMI fell just two points to 72 in January. Any reading over 50 is said to be positive as it means more builders are optimistic than pessimistic. But, one of the components of the HMI – buyer traffic – fell four points to 54 in the survey conducted in the first 10 days of January.

Perhaps as an acknowledgement of the decline in inventories, the government reported earlier this month the pace of starts of new single-family homes fell 11.8 percent.

Hear Mark Lieberman on P.O.T.U.S. (Sirius-XM 124) Friday at 6:20 am Eastern Time. You can follow Mark Lieberman on Twitter at @foxeconomics.

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