The Census Bureau issues a monthly report tracking newly constructed homes with a committed sale during the month. These statistics are estimated from sample surveys and are subject to revision due to the survey methodology and definitions used. The survey is primarily based on a sample of houses selected from building permits. Since a “sale” is defined as a deposit taken or sales agreement signed, this can occur prior to a permit being issued. New home sales are a good indicator of both consumer confidence, but also of future spending for durable goods such as appliances, furnishings and home electronics.
According to the Census Bureau, sales of new single-family houses in May were at a seasonally adjusted annual rate of 476,000 which is 2.1 percent above the revised April rate of 466,000 and 29.0 percent above the May 2012 estimate. Median sales prices for new homes sold in May were $263,900 and the average sales price was $307,800. A detailed look at the data show that over the past year, the fastest growing market was the Midwest, up nearly 77 percent, while sales were virtually unchanged in the Northeast. Over this same period, manufacturing growth in the industrial belt stretching from Indiana through Pennsylvania has been fairly robust, and this is reflected in the home sales data. Even so, new home sales of 476,000 per year are well below their peak of 1,283,000 in 2005, and 25 percent below the average for the 1980s and 1990s. The rapid growth in the Midwest still belies a nearly 80 percent decline from the housing bubble of the mid 2000s.
One of the important facets of the new home sales report is that it reflects overall confidence in the long term health of the national and regional economy. The transaction costs of purchasing a new home are high, and it generally takes from 5 to 7 years to recoup them. In other words, renting a home is generally less expensive than owning unless one plans to stay in the house for at least 5 years. As such, increases in home ownership, and in new home construction represent a long-term bet on one’s ability to continue to make payments in the long term. Outside of the Northeastern states, it looks like people are willing to bet on an improved economy.