Unexpectedly Intriguing!
May 1, 2013

What is the market capitalization of the U.S. new home market?

To find out, we first took the U.S. Census Bureau's seasonally-adjusted estimate of the number of new home sales for each month from January 2012 through March 2013:

Seasonally-Adjusted Number of New Home Sales in the U.S., January 2012 - March 2013

Then we multiplied those seasonally-adjusted values by the average new home sale price recorded by the Census Bureau for each of these months:

Average Value of New Home Sales in the U.S., January 2012 - March 2013

That allows us to arrive at the new home market's equivalent of the stock market's market capitalization!

Seasonally-Adjusted Value of All New Home Sales in U.S., January 2012 - March 2013

We selected the period from January 2012 through March 2013 so we could focus on the new inflating bubble taking hold in the U.S. housing market. Here are some quick takeaways from what we see in the charts:

  • Initially, it only took an additional 1,400-1,500 new home sales each month to launch the bubble.
  • After holding steady for several months, the quantity of new home sales then escalated rapidly in the period from November 2012 through January 2013, peaking in January 2013, dropping dramatically in February 2013, and recovering somewhat in March 2013.
  • The spike in prices in January 2013 is a direct result of the fiscal cliff crisis, which ran from November 2012 into early January 2013. The surge in sales during these months represents a portion of the massive amount of money that left the stock market in the form of the capital gains and dividends that successfully avoided the higher tax rates taking effect in 2013.
  • The market cap of the U.S. new home market averaged about $8.2 billion per month in the first six months of 2012. It averaged $9.2 billion per month in the second half of 2012 with the onset of the second U.S. housing bubble.

Coincidentally, a large amount of money leaving the stock market was the spark for igniting the first U.S. housing bubble.

But the actions of investors seeking to avoid the higher tax rates taking effect in 2013 only explains why new home sales spiked during the final months of 2012 and the first months of 2013, as money flowed out of one market and into the other. It doesn't explain what caused the second U.S. housing bubble to begin to inflate back in July 2012, as we had previously speculated.

And that, as it happens, is a more complex story....

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