Today the Census Bureau reported that 592,000on new homes were sold last month, a number higher than the estimates of 565,000.
For some time, I have been pushing the thesis that if new home sales are to grow beyond the current slow and steady pace, the median home price needs to fall. New home sales estimates for 2014 were badly off, largely because builders were selling to the very high end at a time when rates went up with the taper spike. Now, we are getting some more middle to lower end priced homes in the sales mix. This is a very bullish theme for new home sales and for housing starts.
As you can see below, the big uptick in prices was due to the sales of higher end homes from 2010. However, since 2015 prices have gone sideways and this is the most crucial indicator for growth in this sector.
New home sales for January 2017 were up 12.8% from Feb. 2016. For new home sales to show stronger total sales growth year over year we are going to need to have a few months of prints over 600K. Last year’s total sales were roughly 563,000. The year over year comps will get harder to beat starting in April of this year, so we need to see some months in the 600ks in the coming months to end the year stronger.
In this cycle new home sales have shown slow but steady growth from the lowest levels ever recorded in U.S. history.
The monthly supply of new homes is higher in the period between 2012-2017 than any period from 1999-2005, so builders aren’t going to be building too much more homes until demand gets a lot better. Building smaller homes will help here a lot as existing home supply is much cheaper and has a geographical edge in a city.
This report shows growth in total numbers and a decline in the median sales price. We need more months over 600K to have solid growth for the year. We have over 165 million people working, 44 year lows in unemployment claims, 5.6 million job openings, a long economic expansion and mortgage rates under 5% since 2011.
It’s not much to ask for a few 600K numbers for 2017.
Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his own facebook page https://www.facebook.com/Logan.Mohtashami