January New Home Sales Bullet Points: The Reality

Mark Hanson:

“Will have client detail report out later that clearly shows that stimulus and headlines have once sharply overstated this data set.

Bottom line, this morning’s headline number of 437k was juiced by an unacknowledged short term-event…the year-end cap gains changes. We saw this same thing happen in CA Existing Sales for in Jan…”the cap gains effect ” has been boosting sales volume since Sept but ultimately will lead to a hangover near-term.

In short, in January ALL of the 4k MoM increase in New Home Sales came from the “Western Region” greatly supporting the cap-gains theory. So does the fact that the Northeast — a higher end region — saw a 1k jump in sales (which is 50% due to such low volume in that region) and the South and MidWest regions showed zero sales gains, as there are so few houses there that would be hit with cap gains. Lastly, in this morning’s “surprise” consumer confidence beat the subset housing data showed the expectations to buy a new home in the next 6 months dropped to near a 3 year now.

When a single region outperforms and is responsible for mostly all the gains or losses in a monthly data series go digging because something is not right. And paying attention to headline seasonally adjusted annualized numbers can lead to confusion and malinvestment. The real story always lies beneath the headlines as bulleted below.

1) The Jan New Home Sales headline SAAR blow out of 437k is a case of seasonally adjusting stimulus. This sets up for disappointment near-term.

2) Jan 2013 New Home sales higher by 3k to 4k NSA (can’t tell exact amount due to Census Bureau rounding) sales. Most — if not all — of this increase is due to homeowners that sold their houses for cap gains and rebought in Jan. We saw this in the CA and national resale numbers for Jan as well. The cap gains effect also supported New and Existing Home Sales in ALL of Q4, which means there is a pull forward effect in play, which always ends with a hangover. Some cap gains sellers will probably rebuy in Feb as well. Think about this…the entirety of this morning’s MoM gain in Jan New Home Sales was on 3k to 4k houses, or 1% of the volume of Existing Home Sales sold in January. Bottom line, it’s a rounding error to macro housing and GDP that means nothing until cap gains credit sellers get done rebuying, which will happen soon. Feb cap gains incremental buyer volume will probably be halved.

3) The FULL 4k MoM gain in New Home Sales came from the Western Region supporting the theory it was mostly cap gains sellers/rebuyers who will not be there for long.

4) Dec 12 sales revised higher by ONE THOUSAND sales to 27k NSA. But Nov revised LOWER by one thousand sales to 29k. So, net-net wash.

With sales only in the mid-to-high 20k’s per month a couple of thousand sales in a trough month can produce some pretty amazing headlines when you annualize the number and then throw on top some seasonal adjustment hot sauce. Just like they did in 2010 during the homebuyer tax credit period when “record high” sales were going through and everybody then thought we were in a “durable” housing market recovery with “escape velocity”. Shortly thereafter, Existing Sales took a 30% MoM collapse on the tax credit sunset and everybody all at once realized that massive stimulus really does “activate” certain demand cohorts all at once, steals from the future, and leads to severe disappointment when the stimulus is removed.


Best Regards,


Mark Hanson




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