Demand for New Homes in U.S. is Far Below Prior Records
Plans for a home purchase at at low levels last seen during the recession of 1981-82. New homes sales are at depressed levels far below anything seen in the last half century. The weak demand can be seen in the following graph from David Rosenberg, chief economist for Canada’s Gluskin Sheff. Reference lines were added to define levels exceeded in peaks and at bottoms.
What does it infer for future sales when home purchase plans reach extremes? The following two tables show the data history for both tops and bottoms.
Before 2000, except for 1980, which saw a recession end followed by a new recession start within a year, the year following a bottom saw strong rebounds in new home sales. Sales following bottoms in 1970, 1975 and 1982 saw sales the following year rebound to levels that were close to peak years in home buying plans.
So far in the 2008-2010 sequence, the experience of the late 20th century is not being repeated. There is no increase in new home sales coming out of the 2007-09 recession as there was for the 1981-82 recession. The 1981-82 recession ended in November, 1982 while the latest recession ended in July, 2009. The time line would imply that 1983 might be a weaker year (closer to the end of the recession) than would 2010. In spite of federal tax incentives and much lower mortgage interest rates, 2010 is much weaker.
This data can be no surprise to those who have analyzed all the headwinds of oversupply, high unemployment and potential for further price declines that the current housing market faces.
Note: The data examined here is for new home sales only. Many of those who plan to buy a home will buy an existing home and existing home sales are usually much higher than new home sales. This can be seen in the following graph from Calculated Risk:
There were six times (+/-) as many existing home sales as new home sales from 1994-2006. This has expanded in the last two years to 10-15 times as many existing homes as the market has been flooded with distressed sale properties.
As far as the all-time lows for housing demand displayed in the Rosenberg graph are concerned, the demand for new housing is even more depressed than for existing homes. This is clear in Calculated Risk’s “distressing” gap.
In fact, the demand for new homes has fallen to an all-time low. Another Calculated Risk graph shows new home sales for nearly 50 years.
The actual magnitude of the current extreme is revealed when the new home sales are normalized for population growth. This is done in the following graph.
While demand for housing is near an all-time low for the post World War II era, the demand for new houses is at an all-time low approximately half of the previous lows, when adjusted for population growth.