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. ”
Year to date for 2018, we are still up 2.7% and we have seen positive revisions to all the big headline misses in the previous months for new home sales.
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 data made a huge reversal from the recent peak print of 7.4 months down to 6.0 months, which, and I can’t stress enough, is a massively big deal.
From Fred: https://fred.stlouisfed.org/series/MSACSR
Now to the report:
New Home Sales
Sales of new single‐family houses in November 2018 were at a seasonally adjusted annual rate of 657,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 16.9 percent (±19.9 percent)* above the revised October rate of 562,000, but is 7.7 percent (±20.7 percent)* below the November 2017 estimate of 712,000.
The median sales price of new houses sold in November 2018 was $302,400. The average sales price was $362,400.
For Sale Inventory and Months’ Supply
The seasonally‐adjusted estimate of new houses for sale at the end of November was 330,000. This represents a supply of 6.0 months at the current sales rate
In order for me to give an A-ok for the new home sales market in 2019 I need to see two things:
1. Sales trends above 640K with at least 3 months of revision confirmed
2. Monthly supply below 6.5 months for 3 months
Both of these factors are things reflected in this report – but until the numbers are confirmed by revisions, its not meaningful. Once we see 640,000 trend in sales then we can assume the continuation of the slow and steady growth from the 2017 levels. Don’t trust big headline moves up or down until the corrections are made. The last few reports that showed big downward moves were all were revised higher.
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 fell in the last report of 2018, we should still be able to hit my 2%-5% growth prediction for the 2018. Builders have the ability to discount and provide smaller homes into the mix to help this along. Discounts and more affordable, smaller homes are being offered recently and these things will result in more new home sales and promote more single family construction. This report is positive for our economy but we need to see next month’s revisions and the revisions to the previous report before assuming too much.
Be mindful of the next report as well.
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