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Tax plan bites new home sales

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New Home Sales (January)
NHS fell 7.8% M/M to 593,000 as rising mortgage rates may be starting to affect the market.

  • NHS data is always messy. NHS are amongst the most volatile and revision prone economic data series. At LendingTree we prefer to look through some of this by considering the 3-month average to balance timeliness with information value. The 3-month average of 644,000 is at the third highest level since the financial crisis.
  • Tax plan crushes sales in the Northeast. States in the Northeast such as New Jersey, New York and Connecticut are among the most vulnerable to the new tax law. The share of sales in the NE was just 4%, the third lowest since the financial crisis. The NE has averaged 6.1% of sales over the past 5 years.
  • High priced homes fall back. Homes above $500,000 fell back to 16% of sales in January. In December sales above $500,000 were 22% of sales, the highest proportion since the sales price breakout began in 2002. This included homes above $750,000 at a high of 7% of sales. Buyers may have rushed into these properties to have their mortgages grandfathered under the old mortgage deduction limits.
  • The tax plan presents some opportunities. The reduction in corporate taxes and other real estate developer friendly tax breaks should increase builder profit margins by 10-20%. This will increase the incentive to build more homes, especially at lower prices where new supply has been lacking due to small profit margins.

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