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5 Peculiarities in the New Construction Marketplace

by Peter Thomas Ricci

Fresh numbers dropped this week on the nation’s new construction markets, but there remain oddities and curiosities.

The Census Bureau this week released fresh numbers on new single-family home sales, and it was a verifiable bloodbath. At a seasonally adjusted annual rate of 384,000, new home sales were down 14.5 percent from February and 13.3 percent from March 2013; that’s the largest yearly decline for new home sales in three years.

Of course, this being new construction in the post-boom housing market, there are a number of curiosities and downright peculiarities to March’s data, and we figured we’d explore them in a bit more detail:

1. Less is More in Pricing – Though sales were way down, the median sales price for new homes was way up, rising 11.1 percent to $290,000; and as if that weren’t enough of a curiosity, new home inventory also rose in March, jumping a full month supply to six months (more inventory, the adage goes, lowers price).

2. Don’t Blame the Weather – The horrendous weather in January and February was a convenient scapegoat when new home sales fell at the start of the year, but if the weather was truly behind those disappointing numbers, then March should have presented us with an encouraging bounce back…yet nothing of the sort occurred. Also, 80 percent of new homes nowadays are built in the South and West, yet in those regions, March’s weather was either normal or dry.

3. Pre-Completion is on the Rise – We may be seeing less total sales, but they’re finding buyers much quicker than in the past. So far this year, the share of new home sales that were pre-completion sales has approached 70 percent, way up from the 45 percent in dark days of 2009.

4. Volatile as a Volcano – It’s a given that new home sales data is volatile (indeed, the monthly and yearly totals in March had a margin of error of 12.9 and 9.9 percent, respectively), but so far in 2014, the market has outdone itself. Through the first quarter of 2014, new home sales are down just 1.8 percent; how do we square that with March’s apocalyptic numbers?

5. Someone is Wrong – Finally, the strangest thing of all about March’s numbers is how flagrantly they contradict the NAHB’s reporting on builder confidence, which has not only remained at elevated levels so far in 2014, but actually increased from March to April! How on earth does builder confidence increase when sales are falling by their largest amount in three years? Suffice to say, it’ll be very interesting to see how the data shapes up in the coming months.

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