Reader JGBHimself picked up on the fact that Wednesday’s New Home Sales report showed an exceptional monthly sales surge of 71.9% in the West region while Thursday’s Pending Home Sales report indicated that the West region experienced a notable decline dropping 13.2% from the prior month.Seeing that the surge in West region new homes sales accounted for the majority of the strength of the New Home Sales report one has to wonder what’s going on here?
First, let’s consider that the government considers a new home sale to occur at the signing (and taking of deposit) of the contract for a new construction single family home while the National Association of Realtors (NAR) considers a pending home sale to occur at the signing of the contract to buy an existing single family, condo or coop.
So while directly comparing these two leading contract-signing based indices should be possible, it’s important to note that they each are effectively reporting on different products which could strongly contribute to their correlation (or lack thereof).
Still, the numbers were so far out-of-whack that one must consider what could have contributed to the disparity.
First, NAR asserts that the new home sales data only accounts for 15% of the home sales stock and thus the series is prone to volatility and revision.
We have seen this first hand over the years as the new home sales series is highly revised and often paints a completely different picture months or even years down the road with benchmark revisions.
Another possible cause for the West region new home sales surge is that California implemented its own “first time homebuyer” tax gimmick that was set to expire on January 1 2011 and included a separate plan for new home purchases.
This program seems to have been extended and applications for the credit appear to have picked up throughout December and January… possibly the new home sales number is more directly reflecting this activity.
In any event, we will have to wait a few more months to get a more firm understanding of the trend but for now consider the following chart that compares the national new home sales index to the national pending home sales index.
As you can see from the following chart (click for full-screen dynamic version), in recent years there have been large disparities between to two indices.
