Inventory Over 6 Months For New Homes

In my 2018 Predictions article,  this was what I anticipated for new home sales for the year:

“For this new year I expect to see 2%-5% growth in new home sales that could go higher if the median sales price remains stable and the trend of building smaller homes continues.”

https://loganmohtashami.com/2017/12/31/2018-economic-housing-predictions/

If we achieve only two to five percent growth in 2018, as I predicted, this would mean a 4-year low in terms of the rate of growth. I also warned not read too much into headline numbers for new home sales and housing starts, be they positive or negative because month to month numbers can be volatile.  Instead, follow the trend.

The data released for new home sales for last month, is no exception to that rule.

From Census:  https://www.census.gov/construction/nrs/pdf/newressales.pdf

New Home Sales:

Sales of new single-family houses in January 2018 were at a seasonally adjusted annual rate of 593,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.8 percent (±19.0 percent)* below the revised December rate of 643,000 and is 1.0 percent (±16.4 percent)* below the January 2017 estimate of 599,000.

Sales Price:

The median sales price of new houses sold in January 2018 was $323,000. The average sales price was
$382,700.

For Sale Inventory and Months’ Supply:

The seasonally-adjusted estimate of new houses for sale at the end of January was 301,000. This represents a supply of 6.1 months at the current sales rate.

 When one considers all the revisions to the data for the last 12 months, we are left with the same story for new homes that we have had for the last many years. We don’t have record-breaking demand (are you listening, Redfin); What we have is slow and steady growth in demand.

The mythical 6-month supply rule (that we must have 6 months’ supply of housing in order for it to be considered a healthy market) has been breached again for new home.  Supply is now over 6 months. We haven’t been able to break out this level of during this cycle even with the big miss in sales in 2014. However, if we really did have mortgage rate induced weakness in the marketplace then we should see that reflected in the monthly supply data this year.

From Fred:
https://fred.stlouisfed.org/series/MSACSR

FEB NEW HOME SUPPLY

To really get a good gauge of supply and demand for new homes in 2018 we need to wait until at least April so that the monthly revisions can be taken into consideration. Remember that last year a print over 700K drove everyone nuts with excitement, until the revisions came in and corrected that number downward. As always I advise to not make any broad assumptions based on numbers that are off trend until more data comes in.  Thus far, we cannot assume that we have record-breaking demand.  We have a slow and steady growth in housing demand and this is why builders aren’t listening to Redfin’s advice to have housing starts run at 2-3 million today.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2018/02/26/new-home-sales-down-7-8-in-january

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Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan 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

About Logan Mohtashami:

https://loganmohtashami.com/about/


3 thoughts

  1. Two likely explanations for the poor sales report for Jan 2018 …

    1. New homes are expensive
    2. The M’s have a new attitude toward home ownership today. Unlike their parents, more than half (55%) of the M’s no longer believe that getting married and having a family is that important.

    Robert Campbell
    San Diego, CA

  2. In California, the median home price is around $540K today.

    New homes are approx 40% more expensive than existing home prices on a national basis – using median prices.

    If we multiply $540K x 1.40%, we arrive at a rough median price of $756K for new homes in CA.

    Let’s now look at the numbers for qualifying for a mortgage.

    With an M couple making an average of $72K per year today, and if they wanted to buy a new home in CA with a $700K mortgage at 4.4% for 30 years, their monthly payment for PITI would be about $4,200 per month, which would represent approx 70% of their household income.

    So the M’s are probably not contributing to the price appreciation in CA, which is the highest in the country.

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