New Home Sales fell sharply in December 2016, from a seasonally-adjusted annual rate of 598k in November to 536k. That wasn’t unexpected given the behavior of interest rates since August in particular. It might suggest further declines in new sales as well as construction of new homes in the months ahead.
In the bigger picture, interest rates just should not have this much effect on any part of the home market. With an unemployment rate at or below 5% for each of the past fifteen months, that would normally indicate conditions where a relatively minor shift in the mortgage rate is a secondary or tertiary factor for real estate. These not being anything like normal times, the pace of sales, construction or resales are thus a more intense reflection of conditions in the real economy as quite different than the unemployment rate.
In terms of resales, as noted earlier this week, this disparity is captured in terms of for-sale inventory, meaning the growing lack of it. If demand for homes in general were constant or increasing, then without sufficient volume in resales there should be enormous upward pressure in new home construction to fill in for that missing volume.
Instead, new home sales appear to be growing steadily if irregularly. Even in the historical context with data reaching back to 1963, new home sales have moved up into only past the bottom of the historical range (SAAR).
But this is another instance where the positive numbers of what looks like a recovery are deceiving. Like the headline labor market statistics, the upward track since the bottom takes no account of the size and scale of the decline which preceded it. In cyclical terms, that wouldn’t matter as recovery would be taken literal. Instead, if we rescale the housing market and the new homes component by population, we see that recovery has been quite minimal.
In population terms, the housing bubble wasn’t so far overdone, but the housing recovery has been dramatically underwhelming. That would suggest factors other than housing stock and demographics.
