In my article, 2016 Housing Predictions, this was my outlook for the new home sector:
“I am predicting growth of 4%-8%, the lowest growth estimates I have given in this cycle However, just like 2015, if we can get more lower priced homes in the market, new home sales growth can be much higher than 8%. When only 500K new homes are being sold in a market of over 153 million working Americans, it wouldn’t take much to move the needle”
So far this year, both months of new home sales data have been negative when compared to those months in 2015.
From Calculated Risk:
You may hear from some analysts that it is unfair to compare months with those of 2015 that had over 500K sales of new homes. But, years ago, If I had mentioned that sales for year 2015 would be around 500K, in year 7 of the economy cycle, when rates are at historic lows of 4%, I would have been looked at as leper, and a stupid leper at that. If you recall, new home sales were supposed to be on the verge of the greatest Nirvana expansion ever. The irony of truth is thick.
In truth, the comps are high because demand has been soft in both 2015 and 2016. Those first 2 months of 2015 were the highs for the year all the way until December.
For the last three years, new home sales have missed their expectations. Last year, outlandish sales estimates by some analysts over hyped the market, so that a correction needed to happen in the builders index. Since then we’ve seen a steep 20%-30% decline in some builder stocks. New homes continue to have tough affordability metrics.They are much more expensive than existing homes
A good follow on twitter
$HGX Housing Index Hitting Multiple Resistance (Big Picture)
Last June, on CNBC, I warned on the builders, saying that they presented no value. In January of this year I said they were at a much better entry point for the investor, because the market correction has brought those stocks back into the realm of reality. Also, new homes can’t possibility fall apart, they’re simply too low now.
Now, the time has come for new home sales to show growth, year over year. The 2015 comps from now until December are low enough (especially the March numbers) to provide some positive year over year prints. Just like last year, if median home sales price doesn’t go up substantially, this means there are more lower priced homes in the mix, and these homes can compete with existing inventory.
Don’t believe those who say new home sales are being held back due to low inventory. Like existing homes, there is more inventory from 2012-2016 than any period from 1999-2005.
A better thesis is that new homes sales are being held down by the relative lack of lower priced new homes in the market. This also explains why median new home prices have increased so much. Any uptick in sales from lower priced new homes would be welcomed.
On Monday April 25th the new home sales report will be released. The consensus opinion by the analysts is that sales will be around 522K Seasonally Adjusted Annual Rate (SAAR). This will be a increase over last month and big increase from the same month last year. Any monthly report over 515K, with no negative revisions to prior month’s report, should be viewed as a good sign for building momentum in this sector. Remember, while the headline number can be wild, up or down, we need to see that the revisions don’t go negative to believe the positive trend.
Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987 and is in a partnership with ZeneHome.com