Unexpectedly Intriguing!
February 27, 2020

Nearly two months ago, it looked like the new home market in the U.S. was set to follow the trends for existing home sales in ending 2019 on a high note.

And then, that scenario went on to happen! The release of January 2020's preliminary estimates for new home sales suggests that momentum carried into 2020.

Sales of new U.S. single-family homes raced to a 12-1/2-year high in January, pointing to housing market strength that could help to blunt any hit on the economy from the coronavirus and keep the longest economic expansion in history on track.

The report from the Commerce Department on Wednesday added to a raft of other upbeat data on the housing market, which is emerging as one of the few bright spots on the economy as business investment continues to slump and consumer spending slows. Unseasonably mild weather and the lower mortgage rates that followed the Federal Reserve’s three interest rate cuts last year are boosting housing market activity.

“The strength of new home sales should generate a little extra consumer expenditures on household items like appliances and furniture, and the spending is sorely needed because the coronavirus is likely to weigh on GDP growth in the first quarter,” said Chris Rupkey, chief economist at MUFG in New York. The Commerce Department said new home sales jumped 7.9% to a seasonally adjusted annual rate of 764,000 units last month, the highest level since July 2007. December’s sales pace was revised up to 708,000 units from the previously reported 694,000 units....

New home sales jumped 30.3% in the Midwest to their highest level since October 2007. They soared 23.5% in the West to levels last seen in July 2006 and rose 4.8% in the Northeast to more than a 1-1/2-year high. Activity was likely exaggerated by warmer temperatures. Sales fell 4.4% in the South, which accounts for the bulk of transactions.

For the market capitalization of new home sales, 2019 proved to be the strongest year since 2007. That result can be seen in the following chart showing the trailing twelve month average of the market capitalization for non-seasonally adjusted new home sales in the United States.

Trailing Twelve Month Average New Home Sales Market Capitalization, January 1976 - January 2020

That's also true after adjusting for the effects of inflation over time. The change occurs as the median new home sold in the U.S. has become more affordable for the typical American household, both because of rising incomes and because of falling mortgage rates in 2019.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 26 February 2020. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 26 February 2020. 

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[PDF Document]. Accessed 13 February 2020. 

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