As we were going on our annual Christmas holiday, the news broke that new home sales in the U.S. fell below the economic consensus. Worse, the U.S. Census Bureau's estimates of the number of new home sales in previous months were also revised significantly downward.
Reacting to the news, Mike Shedlock (a.k.a. Mish), predicted:
This is going to take a bite out of GDP estimates.
The last time we looked at the overall state of the U.S. new home market, back on 15 September 2015, when we only had data through July 2015, we had a much more positive view of the contribution of new home sales to the U.S. economy. Here is how we described the market at that time:
... we estimated the equivalent market capitalization of all new homes built in the U.S., using the U.S. Census Bureau's historical records of new residential sales and their average sale price. We find that the market capitalization of all new homes sold in the U.S. has continued to increase, even as their prices have stalled out, which means that their increasing market cap is being driven by an increasing number of sales.
We should note that the U.S. Census Bureau's monthly data for average new home sale prices only extends back to 1975.
On the whole, the stabilization of new home sale prices matched with an increasing volume of sales represents the healthiest possible scenario for the U.S. real estate market. As such, the U.S. real estate market currently represents a source of strength for the U.S. economy.
So now that the data on new home sales has been revised to the worse, let's revisit our calculation of the market capitalization of new home sales in the U.S., where we take the trailing twelve-month average of the Census Bureau's estimate of monthly average new home sales prices and multiply it by their estimates of the number of new homes sold each month. The chart below visualizes our results for the data available through November 2015:
Let's next zoom in the period since January 2000, so we can more clearly see the developing trend in 2015 with respect to the most recent data.
As you can see in the charts above, the market has very nearly flatlined in the second half of 2015. Because it has, it would be fair to say that the new home market has not been making a significant contribution to positive economic growth in the U.S. during that period of time.
On a final note, we should observe that the Census Bureau's new home sales data is subject to frequent revision in the first four months after it is first published, so our outlook may change as the data changes.
Beyond that, our analysis is not affected by the Census Bureau's recent revision of 10 years worth of construction spending data, which will also have a negative effect on the estimates of the nation's Gross Domestic Product for the fourth quarter of 2015, and earlier quarters as well, which will take place as part of their annual revisions in July.
U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 6 January 2015.
U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 6 January 2016.
U.S. Department of Labor Bureau of Labor Statistics. Consumer Price Index, All Urban Consumers - (CPI-U), U.S. City Average, All Items, 1982-84=100. [Online Application]. Accessed 6 January 2016.