New and Existing Home Sales Conditions
Home sales markets across HUD’s 10 regions have started to tighten, potentially signaling continued improvement in home sales going forward.
Two weeks ago, home improvement retailers Home Depot and Lowe’s released quarterly earnings reports that had some analysts confident that the housing market is still healthy and recovering. These companies, which are often seen as a barometer of how the housing market is faring, reported strong sales with bullish forecasts. Because consumers and builders visit these stores for new appliances, home renovation supplies, and other construction needs, these earnings reports suggest to some observers that home sales have been strong and will continue to improve. Before that conclusion can be made, however, it is imperative to dive into the data to see if that is the case across the country.
The third quarter of 2015 saw a seasonally adjusted annual rate of 488,000 new homes sold in the United States, up 11 percent from 439,000 during the same period in 2014. Existing homes sold in the quarter totaled 5.4 million, up nearly 7 percent from 5.06 million a year prior. Overall home sales are said to have picked up due to a pent-up demand for homes as the economy continues to recover. However, new home sales have yet to get back to levels seen before the housing bubble, while existing home sales have largely recovered. In 2002, before the housing bubble, new home sales reached an annual pace of 973,000, and existing home sales were 5.6 million.
This disparity in recovery can be attributed to a number of factors. Existing home sales have bounced back to pre-bubble levels in recent years partially because of fallout from the housing bubble. Distressed sales and cash purchases of existing homes by investors have helped buoy the market as the economy slowly recovered. New home sales, by contrast, have yet to pick up. Although some commentators note that the current state of pent-up demand, job growth, and low mortgage rates should be boosting new home sales, these factors have not extended to a large portion of consumers who might have been potential homebuyers. Nonetheless, the 11 percent jump in new home sales and strong forecasts by Home Depot and Lowe’s may suggest that this trend could be reversing.
Furthermore, sales markets across the country have started to tighten, potentially signaling continued improvement in home sales going forward. In HUD’s Region 10: Northwest, new and existing home sales increased 16 percent to 276,800 homes in the 12 months ending September 2015. In the large metropolitan areas in the region, home sales accelerated even more rapidly during this period. In Portland, home sales jumped 20 percent from 41,450 to 49,800, whereas homes sales in Seattle increased nearly 12 percent, from 62,900 to 70,200. Boise, a much smaller metropolitan area in the region, also saw home sales jump from 16,950 to 19,350.
Even regions with a slower pace of home sales growth are still improving. HUD’s Region 4: Southeast/Caribbean had a balanced-to-soft sales market in the third quarter of 2015. Alabama experienced some of the region’s largest gains, with a 17 percent year-over-year increase in overall home sales in the 12 months ending in August 2015. Similarly, Tennessee and Georgia both had 8 percent growth in year-over-year home sales during this period. However, not every state in the region had such improved sales during this timeframe; South Carolina’s total home sales increased by only 2 percent, and Mississippi saw a 5 percent decrease. The difference among the states’ respective sales markets shows that the recovery in home sales is not a uniform trend across the region and country.
Although home sales nationally have continued to improve, some are concerned that supply constraints could be pushing up prices to unsustainable levels. Fewer new single-family homes are being built and sold, especially compared with levels from before the housing bubble, so the inventory of existing homes has been the market’s primary driver. Some analysts believe that the demand for homes is strong, but unless new homes are built and sold at affordable prices, continued growth in the sales market may be slowed going forward. Although Home Depot and Lowe’s may be reporting strong sales and forecasts now, this demand may not translate into sustained growth in home sales, especially for those at the lower end of the market: first-time homebuyers and renters looking to purchase a home.
Although data are available for new and existing home sales for the fourth quarter, third-quarter data are the latest released in the U.S. Housing Market Summary and Regional Narratives.×
U.S. Census Bureau.×
National Association of Realtors®.×
Metrostudy, a Hanley Wood Company, with adjustments by HUD analysts.×
CoreLogic, Inc., with adjustments by HUD analysts×