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The consensus Econoday estimate was 640,000 new home sales in January but the economists were off by a mile.

Sales of new homes slowed but not all the data in January's new home sales report are negative. New home sales came in at a much lower-than-expected 593,000 annualized rate in January though, in offsets, the two prior months are revised a net 25,000 higher. And badly needed supply moved into the market, up a monthly 2.4 percent to 301,000 units for sale. On a sales basis, supply jumped above 6 months to 6.1 months vs 5.5 and 4.9 months in the two prior months.

But sales in January were definitely soft as the rate in the South, which is by far the largest housing region, fell 14.2 percent to a 301,000 rate with the Northeast, which had been coming on strong, down 33.3 percent to only a 24,000 rate. Year-on-year, sales in the West are doing best at plus 33.1 percent with the South down, however, a steep 10.9 percent. Overall, new home sales are down a yearly 1.0 percent.

Prices are another negative in the report, down 4.1 percent for the median to $323,000 though the yearly rate is still positive at 2.5 percent.

The new home market surged into the end of last year but understandably slowed in January. Yet supply, that is the lack of it, is an overwhelming issue for the market and today's details, including gains underway for permits and starts which are growing in the mid-to-high single digits, are positives for the outlook.

Down Again

Mortgage News Daily reports Despite Gains in Midwest, New Home Sales Down 7.8%.

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New home sales fell again in January, although not quite as sharply as in December. Stalling sales in recent months has now dragged the annual rate below that of a year earlier.

There was a slight increase in inventory, from 294,000 units for sale at the end of December to 301,000 at the end of the current period. That brought the estimated inventory up into what is considered a balanced market, at a 6.1-month supply. The supply was estimated at 5.5 months in December. Of the available homes, only 64,000 are ready for occupancy. Completed homes have a marketing time of 3.3 months, unchanged from December.

New Home Sales at 1963 Level

To put things into perspective, new home sales are at or below where there were for much of 1963.

Year-over-year sales are down 1%, but the trend is a slow increase.

What's Changed?

  1. Attitudes Towards Debt: The attitudes of millennials toward home ownership has changed dramatically. Many saw their parents or friend's parents argue over debt and loses their homes.
  2. Mobility Attitudes: In the 60's it was common to stay at one job for long periods of time. Not any more.
  3. Attitudes Towards having Kids: Attitudes towards family formation have changed. One reason to have a home was to buy into a neighborhood with a good school. If you don't plan on having kids, or you do plan on moving around, a big reason for home ownership flew out the window.
  4. Student Debt: Many millennials are mired in student debt. Potential partners are also mired in debt.
  5. Cost: New homes are not affordable. Median, even average wages have not kept pace with home prices. Thank the Fed for asset bubbles and inflation.
  6. Demographics: Millennials have aging parents. Many have moved back in with their parents to help take care of them. They will inherit their parent's homes.

Mike "Mish" Shedlock