New home sales have finally punctured the logjam that suppressed sales. May 2014 saw an annualized seasonally adjusted rate (SAAR) of new home sales of 504,000, up 18.6 percent from April 2014 and a gain of 16.9 percent from May 2013. The current SAAR is the most since July of 2008.
Unlike existing home sales which are tallied when the actual closing takes place and the property title is transferred, new home sales are merely signed contracts, many of which have not yet even had building permits issued.
The following graphs show the seasonally adjusted annualized rate of new home sales. The first contains the data as reported (and revised) by the U.S. Census Bureau. The second is a12-month moving average of the stated data, while the third shows a side-by-side comparison of the two series.
Median new home prices are at an all-time high at $282,000. That, however, is not a function of the premium just for the home being new, but rather a structural shift in the new home market away from entry level housing to higher-end dwellings. The impact of Qualified Mortgages, increased mortgage loan underwriting standards and weak balance sheets from college loans for first-time homebuyers has relegated builders to concentrate on the move-up higher end markets and sidelined, at least for now, prospective buyers to the rental market.
When comparing new home prices to those of existing homes, new homes are commanding a greater price – but do recall that many of these properties are larger, higher-end homes.
As growing demand (fueled by jobs) continues to outstrip supply (new homes and apartments), expect prices and rents to remain on an upward trajectory. In the 12 months ending May 2014, the U.S. had issued 940,031 total residential dwelling unit permits. In the same period, 2.379 million new jobs were created. That equates to 2.53 net new jobs per new dwelling. Housing economist look at a range of from 1.25 to 1.5 new jobs per new dwelling as being in the normal range.
As long as job growth holds up, expect continued new home sales gains.
That said, however, until the millennial generation commences to create new households, do not expect 1 million plus new home sales on a seasonally adjusted annualized rate soon.
Ted