A few months ago I talked about a material change in the new home sales sector. The monthly supply spiked over 6.5 months, new home sales were trending negative year over year and the HMI data (Builders confidence Index) was falling noticeably. Considering those 3 metrics, it looked like the new home sales sector peaked for this cycle. Under the title, The Housing Market Has Materially Changed… But, I wrote:
“Despite the terrible optics for the new home sales market, I caution everyone not to assume that we have hit our peak and are heading for an epic crash in housing starts and new home sales. New home sales and starts are still very low. In order to lift the dark cloud hovering over the new home sales, we will need to see the following:” “You need to see monthly supply get back down below 6.5 months and new home sales show trend growth of 640K with revisions confirming this.” “That isn’t a tall order, especially if the builders start to discount, but until this happens, don’t expect to see too much action in housing starts.
The “But” in the title to that piece was key. With today’s report, the new home sales market is almost completely out of my penalty box.
In 2018 I wrote:
“I expect to see a 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.”
Today, new home sales were reported to be 692,000, a beat from estimates. Sales are now up 1.7% year to date. More importantly, the 3 months average monthly supply trend is running at 6.3 months and the 3-month sales trend is running at 659,600. With one more good report, I can take the new home sales report out of the penalty box.
New Home Sales
Sales of new single‐family houses in March 2019 were at a seasonally adjusted annual rate of 692,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.5 percent (±17.6 percent)* above the revised February rate of 662,000 and is 3.0 percent (±11.4 percent)*
above the March 2018 estimate of 672,000.
The median sales price of new houses sold in March 2019 was $302,700. The average sales price was $376,000.
For Sale Inventory and Months’ Supply
The seasonally adjusted estimate of new houses for sale at the end of March was 344,000. 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 640,000 confirmed with at least 3 months of revisions.
2. Monthly supply below 6.5 months confirmed with 3 months of revisions.
While the 3-month averages are looking good, I need to see the headline revised numbers before I take the new home sector out of the penalty box.
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 the new home sales market. 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