Unexpectedly Intriguing!
November 29, 2017

Just two months ago, we asked if new home sales in the U.S. were topping out. Based on the just released data for October 2017, we can now say the answer to that question is "not quite yet". The following animated chart, showing the history of the effective market cap of the new home sales market in the U.S. from December 1975 through the preliminary data for October 2017, shows why we think that.

Animation: Trailing Twelve Month Average New Home Sales Market Capitalization, Not Adjusted for Inflation [Current U.S. Dollars] and Adjusted for Inflation [Constant September 2017 U.S. Dollars], December 1975 - October 2017

In nominal terms, the spike in new home sales in October 2017 says that the answer is clearly "no", with the trailing twelve month average of the market cap for new home sales climbing in both September and October 2017 to reach $19.10 billion after having recently hit the bottom of a trough at $18.35 billion in August 2017. After adjusting for inflation, we find that the answer is also no, but is less clearly so, with the trailing twelve month average for October 2017 hitting $19.28 billion in constant September 2017 U.S. dollars, just barely ahead of the previous peak of $19.20 billion reached in June 2017.

Now, here's the interesting thing - when we were observing the potential topping for the market capitalization of new home sales two months ago, the data didn't yet incorporate much of the effects of either Hurricane Harvey in Texas or Hurricane Irma in Florida. A good part of the increase that we're seeing in the two months since may be attributed to the recovery from those natural disasters, which is inflating the nation's overall new homes sales figures.

That is to be expected with post-disaster insurance claims being settled, which is allowing for an increase in new home sales contracts in hurricane-impacted regions, where we are seeing a particularly strong surge in new home sales in the U.S. Census Bureau's South region, which includes both Texas and Florida.

In upcoming months, that situation should stabilize back to more normal levels. And with the Federal Reserve set to start new rounds of interest rate hikes, it will be interesting to see to what extent those actions will have on the health of the market for new homes in the U.S.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 28 November 2017.

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 28 November 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 28 November 2017.


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