Upward Revisions Alter View of Trends for New Home Market Cap

At first glance, after downward momentum in the U.S. new home market reasserted itself in April 2024, it took deeper hold in May 2024.

That gloomy assessment is based on how May 2024′s new home sales data is being reported in the media. Here’s a sample from Reuters:

Sales of new U.S. single-family homes dropped to a six-month low in May as a jump in mortgage rates weighed on demand, offering more evidence that the housing market recovery was faltering.

But the sting from the largest decline in sales in more than 1-1/2 years, reported by the Commerce Department on Wednesday, was softened by a sharp upward revision to data for April, which now shows sales rising instead of falling as previously estimated. Supply was the highest in more than 16 years.

The housing market has been the sector hardest hit by the Federal Reserve’s aggressive interest rate hikes since March 2022. It had, however, pulled out of the slump starting in the third quarter of last year as an acute shortage of previously owned homes boosted demand for new construction….

New home sales declined 11.3% to a seasonally adjusted annual rate of 619,000 units last month, the lowest level since November, the Commerce Department’s Census Bureau said. The percentage-based drop was the biggest since September 2022.

The sales pace for April was revised up to 698,000 units, a nine-month high, from a previously reported 634,000 units.

On net, we find the downturn in the new home market continues to generate headwinds for economic growth in the United States. But the upward revisions mentioned in this excerpt suggest that market in recent months may not be quite as gloomy as the May 2024′s initial estimates make it appear on first glance.

The following charts track the U.S. new home market capitalization, the number of new home sales, and their sale prices as measured by their time-shifted, trailing twelve month averages from January 1976 through May 2024. The upward revisions from February through April 2024 are large enough to alter the apparent trends for all this data. Instead of falling, each of these data series now looks to be seeing either an uptick or a rising trend.

The revised data suggests the trend for the market capitalization of new homes sold in the U.S. bottomed in February 2024. However, the market cap data still falls 0.7% below its most recent peak in November 2023 and more than 5% below its December 2020 peak as the new home market has not recovered from either the Biden era’s inflation or its associated interest rate hikes.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 26 June 2024. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 26 June 2024. 

Image credit: Photo by Sandy Millar on Unsplash.