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. ”
With this December print we close out the year with just 1.5% growth year to date. With more revisions coming, we could end 2018 slightly higher. But lets no kid ourselves, 2018 was meh.
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 with all the revisions, still has “NOT” broken below 6.5 months of supply.
New Home Sales:
Sales of new single‐family houses in December 2018 were at a seasonally adjusted annual rate of 621,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.7 percent (±16.4 percent)* above the revised November rate of 599,000, but is 2.4 percent (±21.3 percent)* below the December 2017 estimate of 636,000. An estimated 622,000 new homes were sold in 2018. This is 1.5 percent (±6.5 percent)* above the 2017 figure of 613,000.
The median sales price of new houses sold in December 2018 was $318,600. The average sales price was $377,000.
For Sale Inventory and Months’ Supply:
The seasonally‐adjusted estimate of new houses for sale at the end of December was 344,000. This represents a supply of 6.6 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 640,000 confirmed with at least 3 months of revisions
2. Monthly supply below 6.5 months confirmed with 3 months of revisions
Both of these factors are not reflected in this report. Until the numbers are confirmed by revisions, they are not meaningful. Once we see 640,000 in sales trending for months then we can assume the slow and steady growth we have seen in this cycle continues. Don’t trust big headline moves up or down until the corrections are made.
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. 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. If we see more weakness in existing home sales and more supply comes on to market, this poses a slight risk to new home sales in 2019. However, to put a positive spin on things — since this has been the weakest new home sales cycle ever recorded in U.S. history, during a record long economic expansion, new home sales have room to grow.
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