Existing-home sales increased 14.7 percent in December from one month prior while new home sales rose 10.8 percent. These headline figures are seasonally adjusted figures and are reported in the news. However, for everyday practitioners, simple raw counts of home sales are often more meaningful than the seasonally adjusted figures. The raw count determines income and helps better assess how busy the market has been.
Specifically, 438,000 existing-homes were sold in December while new home sales totaled 38,000. These raw counts represent a 25 percent gain for existing-home sales from one month prior while new home sales increased 12 percent. What was the trend in the recent years? Sales from November to December increased by 7 percent on average in the prior three years for existing-homes and 3 percent for new homes. So this year, both existing and new home sales outperformed compared to their recent norm.
Annual figures show that existing-home sales increased 6.5 percent in 2015 from a year ago while new home sales dropped 14 percent. In raw counts, 5,256,000 existing-homes and 499,000 new homes were sold in 2015.
Why are seasonally adjusted figures reported in the news? To assess the overall trending direction of the economy, nearly all economic data – from GDP and employment to consumer price inflation and industrial production – are seasonally adjusted to account for regular events we can anticipate have an effect on data around the same time each year. For example, if December raw retail sales rise by, say, 20 percent, we should not celebrate this higher figure if it is generally the case that December retail sales rise by 35 percent because of holiday gift buying activity. Similarly, we should not say that the labor market is crashing when the raw count on employment declines in September just as the summer vacation season ends. That is why economic figures are seasonally adjusted with special algorithms to account for the normal seasonal swings in figures and whether there were more business days (Monday to Friday) during the month. When seasonally adjusted data say an increase, then this is implying a truly strengthening condition.
What to expect about home sales in the upcoming months in terms of raw counts? Independent of headline seasonally adjusted figures, expect slower activity in January for existing-home sales. For example, in the past 3 years, January sales typically dropped by 22 to 32 percent from December. However, activity gets better in February and existing-home sales typically increased by 4 to 5 percent from January. For the new home sales market, the raw sales activity in January tends to be better than that occurring in December, and activity gets even better in February. For example, in the past 3 years, January sales rose by 6 to 14 percent from December while February sales rose by 6 to 15 percent from January.