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Global Economic
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Friday, May 23, 2014 11:58 AM


New Home Sales "Better, Not Strong", and Regionally Very Uneven: US +6.7%, Midwest +47.4%, Northeast -26.7%


The Census Bureau Residential Home Sales report shows Sales of new single-family houses in April 2014 were at a seasonally adjusted annual rate of 433,000.

Sales are 6.4 percent (±15.9%) above the revised March rate of 407,000, but is 4.2 percent (±14.2%) below the April 2013 estimate of 452,000.

Supply is 5.3 months at the current rate of sales.

"Better, Not Strong"

Bloomberg reports Purchases of New U.S. Homes Increase by Most in Six Months but the details (shown below) are interesting.

Purchases of new U.S. homes rose in April by the most in six months as buyers began to respond to falling mortgage rates.

“The deep freeze is over and I think we can expect new home sales to continue to rise,” said David Berson, chief economist at Nationwide Insurance in Columbus, Ohio, who projected a 432,000 rate of April sales. “It’s better; it’s still not strong.”

New-home sales, which account for about 7 percent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes.
New Home Sales by Region (in thousands)

YearMonthUnited States Northeast MidwestSouth West Month's Supply
2013(r)January453 31 58 222 142 3.9
February448 38 67 209 134 4.1
March440 33 61 237 109 4.2
April452 32 62 260 98 4.3
May431 25 70 238 98 4.5
June459 33 56 253 117 4.2
July367 32 53 190 92 5.6
August379 32 58 206 83 5.5
September399 25 60 220 94 5.5
October450 32 68 264 86 4.9
November445 33 57 243 112 5.0
December442 25 60 251 106 5.1
2014January (r)457 30 51 256 120 5.0
February (r)437 24 57 261 95 5.1
March (r)407 30 57 228 92 5.6
April (p)433 22 84 235 92 5.3

Take a good look at that last line. The surge in new homes is entirely in the Midwest. Didn't the Northeast have bad weather? Perhaps the bad weather lingered on in the Northeast. Alternatively, perhaps the Midwest was the most undervalued area.

Regardless of reason, this huge distortion should not inspire much national confidence.

Percent Changes and 90% Confidence Levels

Percentage ChangeUnited States Northeast MidwestSouth West Month's Supply
April 2014 from March 20146.4%-26.7%47.4%3.1%0.0%-5.4%
90% Confidence Interval± 15.9 ± 37.2 ± 64.1 ± 19.5 ± 24.1 ± 15.8
April 2014 from April 2013-4.2%-31.3%35.5%-9.6%-6.1%23.3%
90% Confidence Interval4± 14.2 ± 31.2 ± 42.4 ± 19.5 ± 18.2 ± 22.3

Year-over-year, the US is down, the South is down, the Northeast is down, and the West is down. Only the Midwest is up.

And please note the exceptionally wide confidence levels for Midwest sales. 

The Census bureau adds these additional notes "Changes in seasonally adjusted statistics often show irregular movement. It takes 3 months to establish a trend for new houses sold. Preliminary new home sales figures are subject to revision due to the survey methodology and definitions used. The survey is primarily based on a sample of houses selected from building permits. Since a “sale” is defined as a deposit taken or sales agreement signed, this can occur prior to a permit being issued. An estimate of these prior sales is included in the sales figure. On average, the preliminary seasonally adjusted estimate of total sales is revised about 4 percent. Changes in sales price data reflect changes in the distribution of houses by region, size, etc., as well as changes in the prices of houses with identical characteristics. Explanations of confidence intervals and sampling variability can be found on our web site listed above."

Because of the wide deviation from norm, the census bureau does not have much confidence in the Midwest number. Again, for whatever reason, the Midwest was unusual to say the least. But don't expect most of mainstream media to offer these kind of cautions, and certainly don't expect them to do anything but cheer the increase in sales while also assuming a one-month change in one region translates into a trend change for the country.

As with existing home sales, there is little or nothing that suggests a trend change is at hand. Please see Existing Home Sales "Rebound": Headline Hype vs. Reality for additional details.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com 

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