Unexpectedly Intriguing!
27 September 2017

The just released new home sales data for August 2017 is preliminary, and the data for June and July 2017 is still subject to revision, but it looks like the market capitalization of the new home sales market in the United States may have topped out.

You can see what we mean in the following animated chart that shows the trailing twelve month averages of both the nominal market cap and the inflation-adjusted market cap for new home sales in the U.S. from December 1975 through August 2017.

Animation: Trailing Twelve Month Average of Market Capitalization of New Home Sales in the United States, Nominal and Adjusted for Inflation, December 1975 through August 2017

Market capitalization is the product of the annualized number of new homes sold each month and their average sales price. In the following chart, we've isolated the trailing twelve month average of the annualized number of new homes sold each month from December 1975 through August 2017.

Trailing Twelve Month Average of the Annualized Number of New Homes Sold in United States, December 1975 through August 2017

Using the trailing twelve month average of the annualized number of new home sales lets us compensate for the annual seasonality in the monthly data, which in this case, lets us see that the number of new home sales may have peaked in June 2017. We won't know for sure for several months if that month will prove to be a top in the new home sales market, as the preliminary data we have now is revised and the data for new months is reported.

Digging into the raw data for the annualized number of new home sales each month, we find that the number of new homes sales actually peaked in March 2017, where the monthly sales data has already been finalized, where declines in new home sales since have been registered in all census regions of the U.S.

This information confirms that the declines are not concentrated in the "South" census region, which might be expected in the aftermath of both Hurricane Harvey in Texas and Hurricane Irma in Florida, which both fall within the South census region. If anything, the "West" region has been the most negatively impacted in the period from March 2017 through August 2017.

What that suggests is that the topping of the market capitalization of new home sales in the U.S. is perhaps more directly attributable to a slightly delayed reaction by U.S. new home consumers to the series of interest rate hikes undertaken by the Federal Reserve since December 2016.

Data Sources

U.S. Census Bureau. Monthly New Residential Sales. Release Number: CB17-161. [PDF Document]. 26 September 2017. Accessed 26 September 2017.

U.S. Department of Labor Bureau of Labor Statistics. Consumer Price Index, All Urban Consumers - (CPI-U), U.S. City Average, All Items, 1982-84=100. [Online Application]. Accessed 26 September 2017.

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