In 2018 I wrote:
“I expect to see negative 3% to 1% growth in new home sales in 2019. The builders could discount to add some more business. I expect they will instead hope that lower mortgage rates will get them back on track for slow and steady growth instead of decreasing their margins.”
My rule of thumb for the new home sales market is that if monthly supply breaks over 6.5 months we have issues in the market. This happened last year and as expected sales trends were heading negative year over year. As of today, sales are up 2.8% and this is a positive growth trend in my eyes.
However, the housing market is still in my penalty box until I see 3 months revisions confirmed of 640,000 in sales and monthly supply under 6.5 months with revisions confirmed.
So far neither sales nor supply has hit those levels but we are slowly working our way back to them.
With the revisions the stress in the market is more visible. October and December both had 7.2 + 7.0 months of supply with sales under 600,000. It is safe to say that the new home sales market is having issues in terms of rate of growth, when mortgage rates are above 4.5%.
The headline number for sales was a beat but will likely be revised down next month. Last month’s sales were revised higher to 636,000, so it didn’t quite hit my 640,000 target but came close.
New Home Sales
Sales of new single‐family houses in February 2019 were at a seasonally adjusted annual rate of 667,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.9 percent (±14.4 percent)* above the revised January rate of 636,000 and is 0.6 percent (±13.1 percent)* above the February 2018 estimate of 663,000.
The median sales price of new houses sold in February 2019 was $315,300. The average sales price was $379,600.
For Sale Inventory and Months’ Supply
The seasonally‐adjusted estimate of new houses for sale at the end of February was 340,000. This represents a supply of 6.1 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.
Neither of these metrics are not reflected in this report. However, we could get a positive monthly supply revision for January. With the March sales data, we could see 3 straight months when supply was under 6.5 months. We still need at least 3 months of 640,000 units in sales with revisions confirming those numbers. The latest new home sales data should be a wake up call for all those predicting a housing crash and recession.
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 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 this will result in more new home sales and promote more single family construction. If we see more weakness in existing home sales and increased supply, then we have a slight risk to making our new home sales numbers for 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