What Does New Home Sales Mean?
Investors carefully monitor New Home Sales because it is viewed as a lagging indicator of real estate market demand and a factor affecting mortgage rates. It is driven by factors such as household income, unemployment, and interest rates.
- New Home Sales is an economic indicator measuring sales of new homes.
- It is viewed as a lagging indicator of demand, and is closely watched by investors.
- The United States Census bureau publishes New Home Sales data each month, based on a representative sample of home sales.
Understanding New Home Sales
The United States Census Bureau publishes two versions of the New Home Sales measure: a seasonally adjusted figure which adjusts for seasonal factors such as weather, and a non-adjusted figure. The adjusted figure is shown as an annual total, while the non-adjusted figure is shown as a monthly total. These figures are given for different regions and for the country as a whole.
New Home Sales data is closely monitored by market participants as changes in this metric can be predictive of broader movements in the economy, such as the onset of a recession or the beginning of an economic recovery.
The data for the New Home Sales measure is compiled by conducting interviews with homebuilders and by looking at data from the United States Census Bureau’s Survey of Construction (SOC). Specifically, it uses data regarding building permits issued for new construction projects. A new home is included in the measure if a deposit was paid for the purchase of that home, or if a contract to purchase the home was signed within or following the year of its construction.
The seasonally adjusted figures are intended to remove the effect of factors such as seasonal weather or the overall business cycle. The idea behind seasonal adjustments is to give market participants a clearer sense of the underlying demand for new homes, independent from other factors affecting the economy. To help maintain data quality, ongoing revisions are made and published as new data becomes available.
Given the vast amount of transactions occurring throughout the economy, the Census Bureau relies on statistical techniques and sampling methodologies to estimate New Home Sales data from a small portion of total transactions. As with any statistical method, these procedures create a modest margin of error, which is included with the monthly reports.
Real World Example of New Home Sales
Financial publications report on New Home Sales data and often provide interpretations of that data for readers following market news. For example, the Wall Street Journal reported in July 2019 that purchases of single-family homes increased by 7% relative to the previous month, a sign of health following two months of declining sales.
In interpreting these results, the Journal quoted experts who attributed the positive results to increased demand for lower-cost “starter homes,” which they attributed to low unemployment, growing household incomes, and low interest rates.