Housing Market Revision & Monthly New Home Sales

New home sales rose to a seasonally adjusted 315,000 in November, the highest level since April, and October sales were revised up by 3,000 to 310,000. But home-builder’s stocks fell afterward. Clearly home sales are still at a very depressed level and it’s unclear whether today’s data indicates a sustained uptick, or more bouncing around the bottom.

Americans bought slightly more new homes in November, but 2011 will likely end up as the worst year for sales in history. It’s also below the 323,000 homes sold last year — the worst year for sales on records dating back to 1963.

It is too soon to declare that new home sales are recovering (especially with our misgivings over the construction of the data and the failure to amend the sales numbers for cancellations) but sales appear to have bottomed and the small gains over the last three months combined with the improvement in homebuilder sentiment over the same period is an encouraging development.  We look for a modest gain in new home sales and housing starts in 2012 despite the backlog of foreclosures.

New homes account for just a fraction of the housing market, but they have a big impact on the economy. Each new home built creates roughly three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders. These figures help drive the US economy.

The National Association of Realtors over counted home sales during part of the last decade and has spent the better part of this past year figuring out just how badly they did that. The conclusion of benchmark revisions by the National Association of Realtors, after they realized that their numbers were “drifting” from other industry calculations. Now we know that the recent housing crash was about 14 percent worse than previously thought.

It does however, change perception and economic prediction as we go forward. The Commerce Department will have to revise the housing component of GDP lower, and, perhaps more importantly, we have to look at comparisons and the overall health of today’s housing market differently.

First and foremost, distressed sales, which are foreclosures and short sales, mean a lot more now.

Shadow inventory (properties with seriously delinquent loans or properties already in foreclosure/repossessed), which CoreLogic just reported now stands at 1.6 million properties in October, are suddenly a far greater share of the overall market, since normal for-sale inventory dropped by 14 percent with the revisions.

This is important because loan defaults and foreclosures in total and as a percentage of total inventory and sales volume are key metrics in forecasting home sales and pricing.

Far more importantly, the revisions will have nothing to do with how many borrowers are behind on their mortgage payments or in the process of foreclosure, which is 6.26 million, according to numbers just released from Lender Processing Services.

The Realtors’ revisions will not change the losses at banks, losses to investors, and losses to the now government-owned mortgage giants Fannie Mae and Freddie Mac, or to the Federal Housing Administration.

The Realtors’ revisions will change perception; they may even change consumer sentiment. Headlines will scream Wednesday morning, and reporters like me will jump in with the “breaking news” that far fewer existing homes sold over the past four years than previously thought.