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. ”
Due to the positive revisions in the previous months numbers which brought the 553,000 sales print to 597,000 and the 585,000 print to 591,000, we are still in line with my sales estimates for the year with year to date growth at 2.8%. However, Houston we have a supply issue.
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 7.4 months according to today’s report. I start my new home sales articles with the monthly supply data because it is ignored or misinterpreted by everyone else. Blaming the lack of sales due to low supply, tight lending and a lack of labor for construction just doesn’t hold water and needs to end. Those who have followed my work over the years know that I have consistently said that we would not see 1,500,000 housing starts in this decade because we simply don’t have the demand. But during the past few years we have heard from everyone else that housing demand is booming but that we just don’t have the homes available to buy. Contrary to this, last year’s existing home sales hit a cycle high when inventory hit a cycle low. Now that we have supply, the myth is revealed – we still lack demand. The builders were aware of this and did not overbuild to meet this mythical demand. Follow the money. We have no housing nirvana. We have a slow and steady housing demand coming off of the lowest level of sales during a recovery, ever.
We just had back to back months of over 7 months’ supply, despite the positive revisions. We have a 3 month trend of negative year-over-year sales growth.
Now to the report
New Home Sales:
Sales of new single‐family houses in October 2018 were at a seasonally adjusted annual rate of 544,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.9 percent (±13.7 percent)* below the revised September rate of 597,000 and is 12.0 percent (±13.1 percent)* below the October 2017 estimate of 618,000.
The median sales price of new houses sold in October 2018 was $309,700. The average sales price was $395,000.
For Sale Inventory and Months’ Supply:
The seasonally‐adjusted estimate of new houses for sale at the end of October was 336,000. This represents a supply of 7.4 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. We don’t have over-investment in this sector which is a positive for the U.S. economy. Even if the growth in sales falls in future reports, we should still be able to hit my 2%-5% growth prediction for the year. I think. Most likely we will see revisions to the low sale number in this report as well. However, the monthly supply of over 7 months, with a negative year over year 3 month selling trend does not bode well. These metrics should be a heads up to my fellow housing analysts. We will want to see a positive revision to this sales print and lower inventory in the next report. We don’t want to see another negative headline report, negative revisions and monthly supply rising again. If this negative trend continues, we will need to adjust our expectations accordingly. The builders’ slow and steady approach to housing starts was the right thing to do because demand for new homes sales has been the weakest during this recovery –ever.
From Doug Short:
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