Economists' Outlook

Housing stats and analysis from NAR's research experts.

Latest New Home Sales (March 2015)

  • Contract signings to buy a newly constructed home fell in March from the prior month.  The likely reason is the lack of construction rather than the lack of demand.  The single-family housing starts had been lower in February and March compared to prior months.  With fewer choices coming on line, only fewer contracts can be signed.
  • Diving into the numbers, the seasonally adjusted new home sales (which are technically contract signings and not closings) declined to 481,000 in March compared to 543,000 in February.  One can take comfort that this year’s figure is comfortable above last year’s sales pace of 403,000.  Moreover, the latest monthly decline is likely due to lower new home construction.  The housing starts to build single-family homes in February and March had fallen.  The demand for new homes is still there as evidenced by quick selling time.  On average, it took 4 months to find a buyer after completion of construction, which is near historic lows.
  • The existing home sales are a much larger market segment comprising over 90 percent of all sales.  And existing home sales rose nicely in March, implying clearly that there are more buyers in the market.
  • The home price of newly constructed homes has been rising more strongly than existing homes.  In March, a typical new home sold for $277,400.  A typical existing home sold for $212,100.  The price premium for a new home over existing home is 31 percent in the latest month, compared to the average premium gap of 21 percent from the year 2000 to today.  In addition, the price index of a new home (to account for different size and construction costs) rose by 13 percent.
  • There is a housing shortage as evidenced by fast rising rents and fast rising home prices.  Therefore more new homes need to be built.  The national homebuilders like Lennar and KB-Homes are doing just that as they are able to find money from Wall Street.  However, in America the bulk of new homes historically had been built by small local builders but they have been largely out of the game in recent years.  Why?  The local builders need construction loans and these have been very hard to obtain because of onerous new regulations arising out of Dodd-Frank legislation.  Since the small lenders, unlike the large conglomerate banks, do not cause systemic risk to the economy, an exemption from new financial regulations on small banks should be closely looked at.  By doing so, construction loans can be more readily made and local homebuilders can provide the necessary supply to the market.  Slower home price growth and slower rent growth is what the consumers and the country needs at the moment.

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