This was above consensus expectations. New home sales are counted when the contract is signed, whereas existing home sales are counted when the transaction closes. So new home sales performed better than existing home sales in May. Based on mortgage applications and regional pending home sales reports, there will be a pickup in existing home sales in June (or July), and builder reports suggest there will probably be a further pickup in new home sales too.
No one should get too excited. I’ve long argued that new home sales and housing starts (especially single family starts) were some of the best leading indicators for the economy. However, I’ve noted that there are times when this isn’t true. NOW is one of those times. The course of the economy will be determined by the course of the virus, and New Home Sales tell us nothing about the future of the pandemic.
The longer the pandemic lasts, the more long term damage to the economy – and, if the pandemic worsens and persists – that will eventually negatively impact housing. The outlook for housing depends on the outlook for the pandemic.
This graph shows new home sales for 2019 and 2020 by month (Seasonally Adjusted Annual Rate).
New home sales were up 12.7% year-over-year (YoY) in May. Year-to-date (YTD) sales are still up 1.9%. (the comparison to May of last year was pretty easy).
And here is another update to the “distressing gap” graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.
The “distressing gap” graph shows existing home sales (left axis) and new home sales (right axis) through May 2020. This graph starts in 1994, but the relationship had been fairly steady back to the ’60s.
Following the housing bubble and bust, the “distressing gap” appeared mostly because of distressed sales.
Now the gap is mostly closed (with help from the sharp decline in existing home sales due to the pandemic).
Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.