New Home Sales rose by 5.7% in September from August, to a rate of 313,000. Relative to a year ago, sales are down 0.9%. While the monthly increase is more than welcome, it is still a very dismal rate of new home sales.
There was a slight upward revision to the July numbers of 1,000 to 296,000. The September level was also better than the expected rate of 300,000. Regardless of the changes at the edges, this is still a very bad level. The 17 lowest months on record (back to 1963) for new home sales have all been in the last 17 months.
New home sales have only exceeded the 400,000 level three times since September of 2008 when the financial markets collapsed. The most recent time was in April 2010 as sales were inflated by the rush to get in under the wire and collect the homebuyer tax credit. Sales collapsed after that.
Relative to the peak of the housing bubble (7/05, 1.389 million) new home sales are down 77.5%. Prior to September 2008, there had only been 20 months in which new home sales were below the 400,000 level, with the most recent being in 1982 (a very nasty recession brought on by sky high interest rates inflicted by the Fed to break the back of inflation).
The graph below shows the history of new homes sales (blue, left scale) along with the growth in population (red, right scale), since presumably if you have more people, you will need more places for them to live. Unfortunately, the September numbers have not been updated yet in the FRED database.
Take a very close look at the relationship between new home sales and the grey recession bars. New Home Sales fall sharply before all recessions (with the exception of the dot.com bust caused recession of 2001) and then start to increase sharply in the middle of, or towards the end of, the recession. That clearly is not happening this time around. If you want to know why the recovery has been anemic so far, look no further than the graph above!
New home sales are vital to the overall economy. If new homes are not selling, then home builders have no reason to build more of them. After all, that is very expensive inventory to sit on.
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