New-Home Sales Suffer More than EHS This Recession
Floyd Norris cuts thru the bull to take a closer look at massively overbuilt New Home market:
“For more than three decades, the sales volume of existing single-family homes and newly built houses tended to rise and fall by about the same percentage, as can be seen in the accompanying charts. To be sure, sales of new homes did tend to do a little worse during recessions, but the difference was small and short-lived.”
See the two charts below — the first one shows sales volumes (all homes) from 1975 – 2009 (three-month moving averages)
Below that is the chart of showing how far sales fell from peak levels during each downturn. As Norris notes, “the plunge in sales of existing homes is severe but not unprecedented. But new-home sales are now running at only about a quarter of peak levels, a fall far deeper than anything seen since the statistics began being collected in the 1960s..”
Here are the charts in question:
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click for bigger graph
Norris continues:
“At the peak of the housing boom in 2005, sales of both existing and new homes were running at twice the 1976 rate. This year, the sales rate for existing homes seems to have stabilized at about one-third higher than the 1976 rate. New-home sales also seem to have stabilized, but at about half the 1976 rate. . .
New-home prices, while they have fallen sharply, do not appear to have declined as far as prices of existing homes. At the worst point this year, the median price of existing homes was off 29 percent from the peak, while the largest drop for new-home prices was 23 percent.
Median home price figures need to be used with caution, since there is no way to know how the median home sold in one month compares, in terms of size and location, to the median home sold in a different month. But in past recessions, new-home prices have tended to be weaker than existing-home prices, the opposite of what has happened in this cycle.”
Its intriguing — but not surprising — that new Homes are faring worse than existing homes . . ..
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Source:
A Recession Measured by New-Home Sales
FLOYD NORRIS
NYT, June 26, 2009
http://www.nytimes.com/2009/06/27/business/economy/27charts.html
June 27th, 2009 at 11:59 am
Cause they dont qualify for CRA mortgages!
(just kidding)
June 27th, 2009 at 12:00 pm
Thats funny!
June 27th, 2009 at 12:38 pm
When the price margin is 100% due to equity built up over the years there’s a lot more room for finding a price point than when the margin is 20% at most.
June 27th, 2009 at 12:47 pm
Somebody needs to point out that as nice a job as Floyd did and as much as he extended the argument that it originates with CalculatedRisk and he’s been working it for several weeks know with major refresh posts this week.
More importantly, and the point that Floyd didn’t cover which is critically important, the aberrational gap is due to existing home sales being propped up by REOs, foreclosures, etc. etc. with a lot of shadow inventory threatening to prolong things. As much as employment there are deep structural problems lurking beyond the veil of even a good interpretation of the data. Data that are unusual because this is the first major balance-sheet recession of the post-war world.
June 27th, 2009 at 12:48 pm
Is it too simple to say that this time around sellers took longer to lower prices to what buyers would jump on? A big case of denial, maybe? How could my new house be worth less than I paid? Oh my!
June 27th, 2009 at 12:49 pm
http://www.huduser.org/periodicals/ushmc/spring09/hist_data.pdf
Footnote 3 on page 24 insists that:
No reduction in nation’s housing inventory has ever occurred; apparent reductions are due to changes in bases used for weighting sample data.
The only other “apparent reduction” on the chart was from 1989 – 1990 (apparent drop from 105,661 to 102,265). However, as the footnote indicates, 1989 values were weighted using 1980 census data and 1990 used 1990 census data.
But I couldn’t find anything in the Source and Accuracy of Estimates web page at
http://www.census.gov/hhes/www/housing/hvs/qtr109/q109src.html
to indicate any new methodology or “changes in bases used for weighting sample data” for 1Q 2009.
I’m pretty curious about this.
June 27th, 2009 at 1:02 pm
So, if Mr. Norris’ article on new home sales faring worse than existing home sales is accurate, can someone help me understand how a company like Lennar is up over 5% YTD given Lennar’s backlog of over 2000 homes and new orders of over 3000 homes for the 2nd quarter this year? Just wondering….
June 27th, 2009 at 1:09 pm
Could also be reflective of a turn-around in the trend towards suburbanization. Since the 50’s new homes have moved further out from city centers, because that was where land and the safety of the suburbs was. Over the last few years the combination of long commutes, urban renewal, higher gas prices, and a rising percentage of empty nesters has brought people back to the city. Cities obviously have a higher percentage of existing homes.
During the easy credit days of the last few years, an artificial level of demand was created for those essentially undesirable homes way out in the suburbs by lending to people who couldn’t afford mortgages. Now those loans are gone, and what’s left is the more persistent demand for more desirable homes closer to jobs and city centers.
June 27th, 2009 at 1:24 pm
I thought Tim Iaconos graphic with distressed EHS removed from the EHS graphic plotted vs New Home sales was interesting.
http://themessthatgreenspanmade.blogspot.com/2009/06/more-reasons-to-disbelieve-nar.html
On the earlier topic of HVCC and the NAR, I noticed a bill was just introduced on Thursday calling for a moratorium. Those special interests groups really work quick!
http://effectivedemand.blogspot.com/2009/06/bill-to-put-18-month-moratorium-on-hvcc.html
June 27th, 2009 at 1:41 pm
Floyd’s data would be more dramatic if he had put it in perspective relative to the size of the population and household formations.
New home sales are running at less than the ‘80-’82 recession level, when there were 75 million fewer people living in the U.S. than there are today, so annual houshold formations then were running significantly less than the current rate of between 800,00 to 1 million.
June 27th, 2009 at 3:02 pm
Number 1 contributor to this discrepancy is, house size. The new houses on average have more square footage. With the need for higher down payments, higher standards. This directly affects the size of the house you can buy. It used to be interest rates, now it’s down payments. Your older houses are smaller. It’s what people can afford, so that is what is selling.
June 27th, 2009 at 3:09 pm
Aaron
Because the speculative fever is running hot on Wall Street right now. They’ll flip any old stock around amongst each other no matter the underlying fundamentals. Look at what was going on with GM’s stock over the last several months, and probably still is on the pink sheets. It’s just casino time.
June 27th, 2009 at 3:49 pm
Todd,
I’d love to believe that the less-hurried purchaser is choosing older houses after noticing the Quality delta between them and ‘newer’ construction..
Though, I’d say your explaination hits the nail on the head..
June 27th, 2009 at 3:55 pm
“…Its intriguing — but not surprising — that new Homes are faring worse than existing homes . . ..” means all those clever, well-compensated businessmen blew it.
June 27th, 2009 at 4:23 pm
“….size….”
The era of the mcmansion is thankfully over it appears.
I never got the attraction to more to heat/cool/furnish/clean/maintain homes.
My builder friend out here is working on several now big eyesores now…converting the beasts to multi-family. Of course the zoning out here in flyover is less thorny than the coasts.
Any remaining doubts I had about the VAPID STUPIDITY (redundant?) of Ammmerica (mm for massmediamorons) have been moonwalked into oblivion.
Fuck Michael Jackson.
There I said it…..
June 27th, 2009 at 4:26 pm
PS….my builder buddy noted how shoddy the construction is on nearly anything built since 2000.
He used one of my favorite country phrases….”pig in a dress”….
June 27th, 2009 at 5:02 pm
Mark and Todd make good observations. It tempting for me to look at it as if they are somehow reverting to (more) staples oriented purchases versus the discretionary sector in the short term. But…what happens if the bid for mortgage paper dries up as those pesky issues related to transparency in the bundling of mortgages are addressed? How much agency paper can the Fed really buy before the securitization system is forced to have standards that match the guarantees ? In a Bailout Nation, is 10% retained by the originator really going to convince anyone the system is fixed and now somehow much safer?
I know I stretched this conversation into another area and time horizon but if you follow Doug Noland’s weekly missive you have to be wondering a lot about that busy man behind the curtain and why we seem to have so much faith in him that we are watching for a “bottom”. Many kids growing up right now are being taught lessons they will never forget in the days ahead when they have money.
June 27th, 2009 at 5:43 pm
with new homes- you get tray ceilings- 500 sf bathrooms- walk-in closets the size of bedrooms- granite counters- stainless steel appliances, etc, etc, etc
so a home is much like Karen talking about the new fall ladies handbags- you don’t want to get caught dead in last years model-
and the new homes have the latest Chinese drywall- so what if it off-gases and makes you sick- and with new homes you have interior doors so thin that they flap in the breeze when the A/C kicks on- solid doors- what are they good for-
man I wish I had a new home
June 27th, 2009 at 9:45 pm
One long term problem that has yet to be discussed is the quality of the construction in the 2003-2006 period. Builders would hire anyone to do work, people who had no business swinging a hammer. Many of the contractors will be long gone by the time all of the construction defects appear in 5-10 years. I sure wouldn’t buy a property built during the bubble time frame.
June 27th, 2009 at 10:34 pm
Another factor would have to be the large number of foreclosures in ‘nebie’ developments. With 5 or 6 houses for sale within shouting distance who would buy? Existing homes on the other hand are usually in established neighborhoods where not as many peeps are under water.
June 27th, 2009 at 10:41 pm
>> Builders would hire anyone to do work, people who had no business swinging a hammer.
Sounds like the software biz.
June 27th, 2009 at 10:42 pm
“Its intriguing — but not surprising — that new Homes are faring worse than existing homes . . ..”
Yeah, it’s like buying a used car, there’s depreciation and necessary repairs. So, you negotiate a better deal. However, I think that there is a lot more shadow inventory of used houses waiting to come unto the market once the FED figures out how to stabilize housing prices. That said, new home sales should fare even worse. I don’t think we’ve seen all the layoffs occur in the construction industry, quite yet.
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June 27th, 2009 at 10:59 pm
@wunsacon: OUCH. How true.
@Pat: Yeah. Everything here says lots of houses are being kept off the market and/or not foreclosed on.
Part of it is realtors are trying to stabilize prices to draw buyers in from the sidelines. I don’t think it’s working too well.