U.S. New Home Sales Plunge In June

by Ike Obudulu Posted on July 25th, 2018

Washington D.C., USA: Sales of new single-family houses in June 2018 were at a seasonally adjusted annual rate of 631,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.3 percent (±17.1 percent) below the revised May rate of 666,000, but is 2.4 percent (±24.0 percent) above the June 2017 estimate of 616,000.

Economists consensus had forecast sales of new single-family houses in June 2018 would be at a seasonally adjusted annual rate of 669,000.

Data on new-home sales can be choppy from month to month, and June’s 5.3% decline came with a margin of error of 17.1 percentage points. More broadly, sales rose 6.9% in the first six months of 2018 compared with the first half of 2017.

Sales of new homes reached a postrecession high in November, but have settled lower since and still remain well below the elevated levels seen before the 2007-09 financial crisis and recession.

June figures showed a divergence from recent trends of tight inventory and fast-rising home prices.

Inventory ticked up to a 5.7-month supply at the end of June, the highest rate since last summer, a potential sign that buyer demand is weakening. The median sale price for a new home sold in June was $302,100, down 4.2% from a year earlier. This sales price hit a recent peak of $335,400 in March and has gradually declined since.

Rising mortgage rates are adding to the affordability crunch. The average rate for a 30-year, fixed-rate mortgage was 4.57% in June, up from 4.03% in January, according to Freddie Mac. Still, mortgage rates remain well below levels common in past decades.

Existing-home sales, which comprise the bulk of the market, declined 2.2% in June from a year earlier, the National Association of Realtors said Monday. Sales of previously owned homes have now declined on an annual basis in five of the first six months of 2018.

Sales Price

The median sales price of new houses sold in June 2018 was $302,100. The average sales price was $363,300.

For Sale Inventory and Months’ Supply

The seasonally-adjusted estimate of new houses for sale at the end of June was 301,000. This represents a supply of 5.7 months at the current sales rate.

New Home Sales vs Existing Home Sales

New home sales and existing home sales are released each month at about the same time. Many comparisons are made between the two series, but before doing any comparisons, one must be aware of some definition differences that affect the timing of the statistics.

The Census Bureau collects new home sales based upon the following definition: “A sale of the new house occurs with the signing of a sales contract or the acceptance of a deposit.” The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction.

Existing home sales data are provided by the National Association of Realtors®. According to them, “the majority of transactions are reported when the sales contract is closed.” Most transactions usually involve a mortgage which takes 30-60 days to close. Therefore an existing home sale (closing) most likely involves a sales contract that was signed a month or two prior.

Given the difference in definition, new home sales usually lead existing home sales regarding changes in the residential sales market by a month or two. For example, an existing home sale in January, was probably signed 30 to 45 days earlier which would have been in November or December. This is based on the usual time it takes to obtain and close a mortgage.

Effective with January 2005, the National Association of Realtors created a new monthly series to overcome the lagging effect of the existing home sales definition. This new series is called Pending Home Sales and is based on sales of existing homes where the contract has been signed but the transaction has not been closed, making it roughly equivalent to the new home sales definition. Monthly estimates are expressed as an index where the year 2001 has been set to equal 100.0.

New Home Sales vs New Residential Construction

The numbers of new single-family housing units started and completed each month are often larger than the number of new homes sold. This is because all new single-family houses are measured as part of the New Residential Construction series (starts and completions), but only those that are built for sale are included in the New Residential Sales series. New residential construction is categorized into four intents, or purposes:

Built for sale (or speculatively built): The builder is offering the house and the developed lot for sale as one transaction this includes houses where ownership of the entire property including the land is acquired (“fee simple”: as well as houses sold for cooperative or condominium ownership. These are the units measured in the New Residential Sales series.

Contractor-built (or custom-built): The house is built for the landowner by a general contractor, or the land and the house are purchased in separate transactions.

Owner-built:The house is built entirely by the landowner or by the landowner acting as his/her own general contractor.

Built for rent: The house is built with the intent that it be placed on the rental market when it is completed.

Why Markets Care About New Home Sales (New Residential Sales)

New Home Sales (Also Called New Residential Sales) measures annualized number of new single-family homes that were sold during the previous month; It is released monthly, about twenty five days after the month ends.

While this is monthly data, it’s reported in an annualized format (monthly figure x12).

The usual effect is that ‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.

New Home Sales is a leading indicator of economic health because the sale of a new home triggers a wide-reaching ripple effect. For example, furniture and appliances are purchased for the home, a mortgage is sold by the financing bank, and brokers are paid to execute the transaction.

Other Economy News – crude oil inventories

U.S. crude oil inventories which measures change in the number of barrels of crude oil held in inventory by commercial firms during the past week is down 6.1 million barrels for the week ended July 20, Energy Information Administration (EIA) of the U.S. Department of Energy, data released today show.

Economists consensus had forecast drop of 2.6 million barrels for the week ended July 20

U.S. crude oil refinery inputs averaged 17.3 million barrels per day during the week ending July 20, 2018, which was 46,000 barrels per day more than the previous week’s average. Refineries operated at 93.8% of their operable capacity last week. Gasoline production decreased last week, averaging 10.3 million barrels per day. Distillate fuel production decreased last week, averaging 5.2 million barrels per day.

U.S. crude oil imports averaged 7.8 million barrels per day last week, down by 1,296,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 8.3 million barrels per day, 6.1% more than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 844,000 barrels per day, and distillate fuel imports averaged 207,000 barrels per day.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 6.1 million barrels from the previous week. At 404.9 million barrels, U.S. crude oil inventories are about 3% below the five year average for this time of year. Total motor gasoline inventories decreased by 2.3 million barrels last week and are about 4% above the five year average for this time of year. Finished gasoline and blending components inventories both decreased last week. Distillate fuel inventories decreased by 0.1 million barrels last week and are about 13% below the five year average for this time of year. Propane/propylene inventories decreased by 0.8 million barrels last week and are about 12% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 9.7 million barrels last week.

Total products supplied over the last four-week period averaged 21.0 million barrels per day, down by 0.6% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.7 million barrels per day, down by 0.5% from the same period last year. Distillate fuel product supplied averaged 4.1 million barrels per day more than the past four weeks, down by 3.9% from the same period last year. Jet fuel product supplied was flat with the same four-week period last year.

crude oil inventories ( also called crude stocks, crude levels) is the primary gauge of supply and demand imbalances in the market, which can lead to changes in production levels and price volatility. While this is a USA economic indicator, it most affects the loonie due to Canada’s sizable energy sector.

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