Unexpectedly Intriguing!
June 27, 2019

Following up our analysis of the market for existing homes in the U.S., preliminary and revised data suggests that falling mortgage rates have coincided with a reversal in the late-2018, early-2019 decline in new home sales.

The following chart tracking the trailing twelve month average of the market capitalization of new home sales in the United States shows that rebound taking hold April and May 2019.

Trailing Twelve Month Average of New Home Sales Market Capitalization, Nominal and Inflation Adjusted, January 1976 through May 2019

Market capitalization is the product of average new home sale prices and their number of sales. Looking next at the year-over-year growth rates for the trailing year average new home sales market cap in the next chart, we find that the latest data suggests the new home market has begun to rebound back into positive growth territory, while slightly older data has been revised upward to not be quite as negative as initial data previously indicated.

Year Over Year Growth Rate of Trailing Twelve Month Average of New Home Sales Market Capitalization, Nominal and Inflation Adjusted, January 1976 through May 2019

That sales rebound is occurring even though the average and median sale prices of new homes has been trending downward over much of the last year. The next chart shows the raw average and median sale prices of new homes in the U.S.

Median and Average Monthly U.S. New Home Sale Prices, January 2000 through May 2019

Considering median new home sale prices, that downward trend becomes more clear when we calculate the trailing twelve month average of the raw data presented in this chart, which we've plotted against the trailing twelve month average of median household income in the next chart.

U.S. Median New Home Sale Price vs Median Household Income, Annual: 1999 - 2017 | Monthly: December 2000 - May 2019

The combination of falling median new home sale prices and rising median household income means that new homes have been becoming relatively more affordable. The last chart shows that the median new home in the U.S. is now costing about 5.05 times the median household income, down from a peak of 5.45 in February 2018.

Ratio of Trailing Twelve Month Averages for Median New Home Sale Prices and Median Household Income, Annual: 1967 to 2017 | Monthly: December 2000 to May 2019

New home sales data can be revised as many as three times in the months following its first being reported. Annual data for new home sales in 2018 is now available, with a median sale price of $326,400 and an average sale price of $385,000, but annual data for median household income in 2018 won't be available until sometime in September 2019.

References

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. Accessed 12 June 2019.

U.S. Census Bureau. Median and Average Sales Prices of New Homes Sold in the United States. [Excel Spreadsheet]. Accessed 25 June 2019.

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 25 June 2019. 

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