Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales.
- New home sales slid a notch in the latest monthly data report. There were 313,000 contract signings on an annualized basis after accounting for seasonal factors in February. That is down very modestly from the three previous monthly figures. But the graph below shows that new home sales have been very low with essentially flat line movement since 2010.
- Note on naming: ‘new home sales’ are contract signings of newly constructed homes and they are not closings. By contrast, ‘existing home sales’ measure closings of re-sale properties while ‘pending home sales’ measure contract signings.
- New home sales follow different dynamics as compared to existing home sales. The price points on new homes are higher, thereby not offering the big discounts that existing homes currently provide. Builders have a floor on prices because of their need to at least cover the construction material cost, which has been rising. In addition, new home sales are determined by the level of new home construction and homebuilders have been constrained because of the difficulty of obtaining construction loans. A final point to note is that new home sales make up less than 10 percent of the overall home sales market.
- Despite the latest monthly decline, the prospect for new home sales recovery is an approximate 30 percent jump in annual sales to about 400,000 in 2012, from 300,000 in 2011. Builders will have to build more because of record low inventory of newly constructed homes. Keep in mind that even with the increase, sales of new homes will be nowhere close to the peak year of 1.2 million set in 2005.