What are New Home Sales?
Let me explain New Home Sales to you directly. New Home Sales, which you might also hear called 'new residential sales,' is an economic indicator that the U.S. Census Bureau puts out every month. It measures the sales of homes that have just been built.
Key Takeaways
Here's what you need to grasp right away. New Home Sales tracks the sales of newly constructed homes and serves as an economic indicator. It's considered a lagging indicator of demand, but investors still pay close attention to it for hints about the overall economy. The data comes from a sample of home sales and is influenced by things like household income, unemployment rates, and interest rates.
Understanding New Home Sales
You should understand that investors keep a close eye on New Home Sales because it's a lagging sign of demand in the real estate market, and that can affect mortgage rates. Factors driving it include household income, unemployment, and interest rates.
The U.S. Census Bureau releases two versions: one that's seasonally adjusted to account for things like weather, shown as an annual total, and a non-adjusted one given monthly. They provide figures for regions and the whole country.
Along with New Home Sales data, metrics like the absorption rate get monitored because shifts can signal bigger economic changes, like a recession starting or recovery beginning.
The data gets gathered through interviews with home builders and from the Census Bureau's Survey of Construction, specifically using info on building permits for new projects. A home counts if a deposit was paid or a contract signed in or after the construction year.
Seasonal adjustments aim to strip out effects from weather or business cycles, giving you a better view of true demand for new homes. Revisions happen as new data comes in to keep everything accurate.
Important Note on Data
Keep this in mind: with so many transactions in the economy, the Census Bureau uses statistical sampling to estimate New Home Sales from just a fraction of them. This means there's a small margin of error, which they include in the reports.
New Home Sales Data Interpretation
When financial outlets report on New Home Sales, they often break it down for you. For instance, in July 2019, the Wall Street Journal noted a 7% rise in single-family home purchases from the prior month, which was positive after two down months.
Experts they quoted linked it to demand for affordable starter homes, thanks to low unemployment, rising incomes, and low interest rates.
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