more realistic about housing demand.
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.”
https://loganmohtashami.com/2018/12/29/2019-economic-housing-predictions/
Recently I took the housing market out of the penalty box as long as sales trends stay above 640,000 and the monthly supply doesn’t go above 6.5 months (With 3-month revisions confirmation). Even with today’s sales miss, we are still under those parameters for the monthly supply portion. So far sales are up 2.2% year to date, higher than my 1% high-level forecast for growth in 2019. I have talked a lot on twitter recently that people should be mindful of these big sales prints that we were having in 2019. Last year the original bad headline prints were all revised higher outside of two reports. So for 2019, don’t be shocked if we see trend revisions take down some of the more significant positive prints this year. Today’s announcement is showing those revisions, although May’s number will most likely be revised higher slightly.
This is why I have always stressed that we just need to see sales trends hold 640,000 and monthly supply stay below 6.5 months (With 3-month revisions confirmation) to be ok with new home sales in 2019. I tried my best to remind everyone about this in my article 2 months ago
“While we can rejoice that the mega bearish case of this sector is taken offline, all we did is go back to the slow and steady new home sales and housing starts theme. Anything more taken from this is a mistake in my eye. Going out be mindful that 4.75% -5% mortgage rates created the major red flag for this sector. As always, keep in mind my model for the new home sales sector.
As long as the monthly supply doesn’t break above 6.5 months and sales don’t trend negative year over year we are ok. However, the low bar that the housing sector has enjoyed for years is coming to an end.”
https://loganmohtashami.com/2019/05/23/best-new-home-sales-report-of-the-cycle/
Remember that new home sales data can be wild up or down, and revisions are the key to the truth.
With revisions now.
3-month sales trends are running at 636,000 and monthly supply running at 6.36 months.
(3-month sales data not good, but May will be revised higher, most likely.) The monthly supply still below 6.5 months but awfully high still for this cycle.
Year to date we are running at 652,300 sales with monthly supply at 6.25 months.
This isn’t wildly positive data, but it’s ok considering what happened last year. Last year we had a mini-recession in housing even though nobody wants to really talk about it.
This is a big reason why I believe the builders will be really cautious going out for years on how much construction they will do because twice now in this cycle they were bitten with weakness in demand and they don’t really want another overinvestment cycle.
From Fred:
https://fred.stlouisfed.org/series/MSACSR
This is why my theme for my housing start article has been that permits have stalled for 30 months now.
https://loganmohtashami.com/2019/07/17/housing-permits-stalled-30-months/
From Census:
https://www.census.gov/construction/nrs/pdf/newressales.pdf
New Home Sales
Sales of new single‐family houses in June 2019 were at a seasonally adjusted annual rate of 646,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.
This is 7.0 percent (±15.2 percent)* above the revised May rate of 604,000 and is 4.5 percent (±21.8 percent)* above the June 2018 estimate of 618,000.
Sales Price
The median sales price of new houses sold in June 2019 was $310,400. The average sales price was $368,600.
For Sale Inventory and Months’ Supply
The seasonally‐adjusted estimate of new houses for sale at the end of June was 338,000. This represents a supply of 6.3 months at the current sales rate.
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 can 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 going out in the future. 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.
From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2019/07/24/new-home-sales-up-7-in-june
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