New Home Sales

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales.

• Cold wintry weather was no barrier for people looking for newly constructed homes. New home sales moved at the fastest pace in over 5 years in this January.
• New home sales, which are really contract signings and not closings, rose to 468,000 annualized pace in January, up 10 percent from the prior month. Sales rose in the Northeast, the South, and the West. Only the Midwest showed a decline.
• Because of some increases to housing starts last year, the inventory of new home listings has bounced off their absolute lows. Still, the raw inventory count is essentially at close to a 50-year low. Many more new homes need to be built. Additional newly built clean inventory also helps on existing home inventory since mover into new homes leave behind their homes for sale. The supply of new homes based on the current sales pace is 4.7 months – a tight market condition.
• The median price of a new home in January was $260,100. That is a 37 percent premium above the current median existing home price of $188,900. Normally, the gap between the new and existing home prices should be about 10 to 15 percent. The homebuilders are evidently constructing larger and more expensive homes recently, perhaps in response to the huge stock market wealth gains among the upper-tier households. The large price gap also suggests that any home price decline potential on existing homes is minimal.
• Visualize your future newly constructed dream home. There are many TV shows catering to this inner human desire to live well. It could be this anticipation that forces us to wake up every day to work extra hard and save money. Some research has shown anticipation can be more emotionally satisfying than actual realization. Planning for a vacation is said to be more fun than being on the vacation. People are often happier on Fridays (a work day) than on Sundays (a non-work day) because of the anticipation of the next days. Therefore, dream big of your retirement home and be happy working towards that goal.