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New Home Sales Spike Most in 25 Years: What's Going On?

New Home Sales Spike Most in 25 Years: What's Going On?
New home sales rose a whopping 17.5%, the strongest gain since 1992 and the most homes sold in one month since 2007.

September was a great month, but all of October's gains were revised away, and then some.

October's 6.2% Gain, Now a Loss

 

The reported 6.2% gain turns out to be a revised 1.7% decline. Fancy that.

Do I have any faith in the numbers this month? Not much. Why should anyone?

Confidence Interval

Please note the confidence interval of +- 10.4%.

The commerce department was within their confidence limit. The October revision was 7.9 percentage points.

Historical Perspective

https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/zmfATcSa4EegwR7v_znq6Q/eyMznTRNW0mqPohnsIjlfA

Why the Surge?

For starters, we are not positive there was a surge, but let's assume it happened. Here are three likely reasons.

  1. Hurricane Impact
  2. Tax Changes
  3. Wealth Effect

Hurricanes

The hurricanes destroyed or damaged many homes. That had to create some incentive for people to move. Some of those who did move sold their existing home and bought a new one.

Since sales were up in all regions, hurricanes cannot provide the total answer.

Tax Impact

Existing mortgages are grandfathered in, but the new legislation caps the mortgage deduction. This is likely a minor impact, but some may consider it.

Wealth Effect

The surge in the stock market is likely the most significant force behind the jump. Let's turn to existing home sales for an example.

Lawrence Yun, the NAR's chief economist had this to say about existing home sales:

“As evidenced by a subdued level of first-time buyers and increased share of cash buyers, move-up buyers with considerable down payments and those with cash made up a bulk of the sales activity last month. The odds of closing on a home are much better at the upper end of the market, where inventory conditions continue to be markedly better.”

First-time buyers were 29 percent of sales in November, which is down from 32 percent both in October and a year ago.

By Mike "Mish" Shedlock

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