I want to direct your attention at two items related to New Home Sales: The chart below, and a post from 2005:

First, the post: New Home Sales Data: Don’t rely On It Either New Home Sales, which depend in large part on wself-reporting to Census from Home builders, are not especially reliable. There is a get to it next month quality that means any given month’s data can be wildly off. You are much better off taking a moving average of three months rather than relying on a single monthly data point.

Second, have a look at the trend of the New Home Sales chart:  If you doubted my statement this morning that home prices remain overvalued, the chart makes that issue clear. Why buy a brand new home when 2 year old existing homes are selling for so much less?

Take a look at the historical peaks and valleys in the 1960s, 70s, and 80s. That changed in the 1990s — it broke out to a new level — a combination of population growth and a booming stock market led to some profit rotation from Equities into  Real Estate.

The final phase was an entirely different order of magnitude . . .

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The Residential Real Estate Ugliness in One Chart

click for larger ugliness

Original chart Calculated Risk; Annotations The Big Picture

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Previously:
New Home Sales Data: Don’t rely On It Either (November 30th, 2005)

Should You Buy a Home? Looking (Again) at Housing (March 23, 2011)

Category: Data Analysis, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “New Home Sales Notoriously Unreliable”

  1. dead hobo says:

    BR observed

    Why buy a brand new home when 2 year old existing homes are selling for so much less?

    reply:
    ———
    Agree strongly. I’ve become a big fan of House Hunters and House Hunters International lately. While I am frequently astounded at the high price of some US real estate, it is obvious that very inexpensive used real estate is available and a lot is in new or better condition. I am amazed how far your dollars go in Texas and Las Vegas.

  2. SivBum says:

    More alarming is that selling price was lowest since Dec 2003!!!

  3. Super-Anon says:

    Gotta love the financial media. Oil is no longer hitting “new highs” (that might be bad for stocks). It’s hitting new “best levels”.

  4. wally says:

    “Why buy a brand new home when 2 year old existing homes are selling for so much less?”

    The odd thing about this is that on a square foot cost basis you can build a new home for less than what a used one would cost – at least where I live. The problem is that the newer home would be built in a far outer ring suburb in a half-complete development with square footage and ‘amentities’ that you really don’t want or need and most of your neighbors would be on pretty dicey ground financially. The homes in solid, older developed areas (in Minneapolis, that means Edina, Wayzata, SW Minneapolis, etc.) cost more per square foot than new and also did not drop in price as much during the bust. They aren’t just selling you a house; they are selling location: access to transportation, to parks, to cultural facilities, to good schools… things that you cannot get out where the newer homes are being built.
    You can tear down and rebuild in the more desirable areas, but you can imagine what that does to costs.

  5. SivBum says:

    wally,

    In the heart of silicon valley, tear down and rebuild is the only option. The norm is tear down a $1 million 3/2 home and rebuild at ~$200-$300/sq.ft.

  6. azkek says:

    In AZ, the discount of buying a decent used home is at least 30% over the cost of new construction. Copper, lumber, and building materials are not cheap as of this time. Construction labor is very cheap. Put it all together, and the supply is just overwhelming the market. Truly it is the best time I have ever seen to buy a home.

  7. chessNwine says:

    “Quit doling out that bad housing economy line.” – Don Luskin’s LiveStrong bracelet

  8. DeDude says:

    wally; but if you compare the price of a 2 year old home in a outer ring suburb with the total building and lot cost of a new home in the outer ring can you still beat it. My understanding of the low building rates is that many markets simply does not allow you to build and sell with a profit because of competition from new used homes.

  9. Patrick Neid says:

    The bubble circle is now complete. Welcome to flatland.

  10. Mike in Nola says:

    My cousin’s a custom builder and he’s having the problem you talk about. He can’t compete with prices set by bank REO’s. He’s surviving doing remodeling for people who can’t or won’t move because they won’t sell their houses under current conditions.

    He did mention that the guys making a lot in real estate are the ones with cash who can buy foreclosures and rent them out to those who can’t get financing, or sell them the house holding the note and charging 7-8%. There are many people who can pay a good note, but can’t get a loan.

  11. [...] the record low data in New Home Sales yesterday, we looked at a 50 year chart. Today, I want to expand upon that and look at a 120 year chart of real vs. nominal home prices, [...]

  12. budhak0n says:

    This just reminds me of your earlier post which laid out the sweet sixteen of bankruptcy cases.

    Just watching the clock tick down until you’re going to see one or two or 10 of these major developers in court .

    But if the market rebounds completely and they get themselves a whole new crop of socials and downstrokes., all the power to them.

    Nothing is certain.

  13. [...] government, trying to hold prices higher.  Part due to unemployment and a stagnant economy.  Like Barry Ritholz, I am not too alarmed by the low level of building permits and housing starts.  There is a huge [...]