In 2017 I wrote:
” 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. ”
Growth in new home sales and all other housing metrics are matching my predictions for the year. The housing story for 2018 shouldn’t be viewed as bearish as it is being portrayed by some. We remain on trend to match my new home sales estimates for the year but something big happened today. We broke above my 6.5 month supply new homes rule and had a negative year over year print. This should be a wake up call for everyone that said that demand was strong and it was all about supply.
Before we delve into the numbers of today’s new home sales report, I would like to remind everyone that the monthly supply of inventory for new homes has been higher every month in this cycle, compared to the last cycle. The monthly supply is at 7.1 months according to today’s report. The reason I always start my new home sales articles with this monthly supply data is because no one else puts any real weight on this.
From Fred: https://fred.stlouisfed.org/series/MSACSR
Today, the Census Bureau reported that new home sales missed estimates in a big way. Revisions were negative. The sales trend appears to be leading to 623,000 units for the year. With the recent trend and negative revisions, there is a chance that new homes sales growth will be below 2%-5%, my prediction for the year. As of now new home sales are running at 3.5%, still in line with my estimate for year to date growth. With any positive revision prints we could even beat my estimates this year. Yes, you heard that correctly, beat sales estimates for 2018. Also, purchase application data has been positive YoY on every single report this year outside of 3 reports this year.
New Home Sales:
Sales of new single‐family houses in September 2018 were at a seasonally adjusted annual rate of 553,000,according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.5 percent (±12.1 percent)* below the revised August rate of 585,000 and is 13.2 percent
(±13.6 percent)* below the September 2017 estimate of 637,000.
The median sales price of new houses sold in September 2018 was $320,000. The average sales price was $377,200.
For Sale Inventory and Months’ Supply:
The seasonally‐adjusted estimate of new houses for sale at the end of September was 327,000. This represents a supply of 7.1 months at the current sales rate
New home sales are continuing their slow and steady climb. Since sales are still historically low, this sector has legs to walk albeit, very slowly. This is a positive for the U.S. economy since we don’t have over-investment in this sector. Even if the growth in sales falls in upcoming reports, we should still be able to hit my 2%-5% growth prediction for the year.
However, the monthly supply above 6.5 months is an issue. This metric should be a heads up to my fellow housing analysts. What we want to see in the next report is a slightly positive revision to this sales print and inventory to go down. What you don’t want to see is another negative headline report, negative revisions and monthly supply rising again. If this happens and this trend continues, we will need to adjust our expectations accordingly. Make no mistake, the builders slow and steady approach to housing starts in this cycle was the right thing to do when the demand for new homes sales has been the weakest ever.
One final note for those in Southern California: I will be part of a housing panel on November 8th in Mission Viejo to talk about the state of housing and what to look for in 2019.
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