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Interpreting the New Home Sales Data – September 6, 2013

Lake Tahoe Home Loans and Lake Tahoe Mortgage Loan Rates -Interpreting the New Home Sales Data  – September 6, 2013

The first thing worth mentioning is that there seem to be few repercussions from the surprising decline in the number of new homes sold (more accurately, entered into a contract of sale) in July. (Specifically, sales of new homes fell from 455,000 to 394,000 in July compared to June.) That this odd blip on our radar screens occurred at all, though, should bring to mind a few oddities regarding the monthly computations of new home sales.

First, the data are collected from a variety of sources, and the figures don’t all arrive in a neat package on one pre-selected day. As a result, we often end up with inaccurate sums, many of which have to be revised in the following weeks.

This very thing happened in the past month, but we already have evidence that the Census Bureau was most likely working with inadequate data over the prior two months, because the stellar sales numbers for April and May were revised down by about 62,000. We’ll be watching the next set of new home sales figures very closely, trying to scope out the cause of recent declines.

Also important in understanding new home sales numbers is the fact that the Census Bureau is working with sales contracts, not with completed sales. (By contrast, the monthly computation of existing home sales by the National Association of Realtors® counts up the number of closed sales, not the number of recently-opened sales.) Closed sales are history; but recently-opened sales may or may not work their way through the closing process, especially in today’s marketplace, with its changing interest rates and difficulties in getting buyers qualified for needed financing.

The new home sales numbers from the Census Bureau sounds more like the Pending Home Sale Index. The Pending Home Sales Index roughly predicts how many homes will close in the future; the new home sales computation does similar work for the new-home market. It should strike us that—though the existing home sales level was very high last month, the Pending Home Sales Index declined by 1.3%. This suggests that the number of homes now selling may be lower than the existing home sales figures and, further, that we may see sales slide a bit in the future.

The new home sales figures, therefore, were not welcome, but they were a corrective to the extraordinary optimism to be found in the monthly survey of builders (the NAHB Housing Market Index). And so it goes in our three-steps-forward, two-back market. It does keep us alert, if not fully informed. Stay tuned.