Transcript Housing Starts/Building Permits

New Home Sales as a Measure
of Economic Well Being
Rabin Saidian
Patricia Trujillo
Market Indicators
Spring 2007
“It is the policy of the United States to encourage,
support, and promote the private ownership of
property and to ensure that the constitutional
and other legal rights of private property owners
are protected by the Federal Government.”
- H.R. 4128, §10
The emphasis of American culture on property
ownership tells us that we can examine the real
estate market and have some idea about the
state of the economy.
New Home Sales
• Published by: Bureau of the Census
• Frequency: monthly
• Period Covered: prior month
• Volatility: high
• Market significance: moderate
• Web site: www.census.gov
What is it?
• Tracks how many new single-family houses were
•
sold throughout the United States during the
previous month, a house being considered “sold”
when the contract has been signed or a deposit
has been accepted.
Data is collected through the Survey of
Construction, which surveys all the purchases of
houses requiring a building permit plus those not
requiring one.
What is in the Report?
• Information about:
– Number of houses sold for each region (South, West,
North-east, Mid-west), in thousands.
– Month supply (i.e. how many months would the
inventory last at the going rate if no new houses are
built)
– Median Sales Price
– Average Sales Price
– Number of houses sold by type of financing
– Number of houses sold by sales price
Why is it important?
• Highly volatile, leading indicator of
economic activity
• Houses are investment tools in addition to
commodities (due to the appreciation of
land)
• Consider that Y = C + G + I + NX; since
houses are generally very expensive and
call for extensive financing plans….
Why is it Important?
• … the purchase of a new home increases C significantly,
causing an increase in Aggregate Demand, ceteris
paribus.
• Increased housing purchases are indicative of increased
consumer optimism about the future, and vice versa.
• In addition, because of the role of banks and lending
institutions, purchases of new homes figure greatly into
the market for loanable funds.
• Directly related to federal funds rate
(i.e. increasing the rate decreases liquidity, making it
more difficult to obtain loans and purchase new homes).
Keys to Interpreting the Data
• Be aware of seasonal fluctuations: housing sales
•
•
increase during spring and summer, decreasing
during fall and winter.
The “annually adjusted rate” takes care of these
fluctuations, giving us a clearer depiction.
This data focuses only on single-family,
residential units; commercial properties are not
included.
Latest Release
An annually adjusted rate of 858,000 new homes were sold
in March 2007. This is 2.6% higher than the revised
February 2007 figure of 836,000, but 23.5% below the
estimated 1,121,000 homes sold in during March 2006.
The first estimate (2.6%) includes 0 in its confidence
interval, signifying that this figure is not statistically
significant; the 23.5% decrease, however, was
statistically significant.
Additional Information about March
2007
• Median Sales Price = $254,000
• Average Sales Price = $330,900.
• The current sales rate represents a supply
of 7.8 months. That is, if no new houses
are built, the “for sale” inventory would
last 7.8 months.
period
Jan-07
Jan-05
Jan-03
Jan-01
Jan-99
Jan-97
Jan-95
Jan-93
Jan-91
Jan-89
Jan-87
Jan-85
Jan-83
Jan-81
Jan-79
Jan-77
Jan-75
Jan-73
Jan-71
Jan-69
Jan-67
Jan-65
Jan-63
Houses (thousands)
Historical Data
Houses sold per month, not seasonally adjusted, since Jan 1963
140
120
100
80
60
40
20
0
Period
Jan-07
Jan-05
Jan-03
Jan-01
Jan-99
Jan-97
Jan-95
Jan-93
Jan-91
Jan-89
Jan-87
Jan-85
Jan-83
Jan-81
Jan-79
Jan-77
Jan-75
Jan-73
Jan-71
Jan-69
Jan-67
Jan-65
Jan-63
Rate
Historical Data
Seasonally Adjusted Annual Rate Since Jan 63
1,600
1,400
1,200
1,000
800
600
400
200
0
Ja
n
M -0 0
ay
Se 00
pJa 00
n
M -0 1
ay
Se 01
pJa 01
n
M -0 2
ay
Se 02
pJa 02
n
M -0 3
ay
Se 03
pJa 03
n
M -0 4
ay
Se 04
pJa 04
n
M -0 5
ay
Se 05
pJa 05
n
M -0 6
ay
Se 06
pJa 06
n07
Seasonally Adjusted Annual Rate
A Closer Look at Recent Years (Since Jan 2000)
1,600
1,400
1,200
1,000
800
600
400
200
0
Period
Data Analysis
• Recent data indicate that the market for
new houses has been declining, which is
symptomatic of a weakened economy.
• Also, we note that the increase from last
month was not statistically significant,
while the decrease from last year was: this
means that if we adjust for seasonal
fluctuations, the market has declined.
Data Analysis
• On the other hand, the figures may have improved since
•
•
•
last month, and the last chart we looked at seems to
have an upward-pointing “tip.” Also, a sudden decrease
in the federal funds rate would certainly cause inflation.
Therefore, on the basis of this indicator alone, it would
seem that the Fed should wait a month or so, and if
things get worse, it should gradually decrease the
federal funds rate.
In fact, according to a recent Federal Reserve Press
Release (May 9, 2007), the Fed did decide to keep the
rate steady at 5.25% until the economy sends more
signals about its well being.
(Standing Ovation)