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.”
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).
We are blowing this house party off the charts now.
With revisions now.
3-month sales trends are running at 690,666 and monthly supply running at 5.63 months.
Year to date, we are running at 673,444 sales with monthly supply at 5.94 months.
This data is good enough to start forecasting flat to slightly positive growth in housing starts in 2020 as the excess housing supply is being brought back down to a more acceptable level. If we can keep total new home sales between 650,000 – 670,000, that in itself would be great for 2019. You don’t need to see the 3-month sales average grow from 690,666. All you need to see is the revisions hold up these better sale numbers.
New Home Sales
Sales of new single‐family houses in September 2019 were at a seasonally adjusted annual rate of 701,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.7 percent (±16.1 percent)* below the revised August rate of 706,000, but is 15.5 percent
(±20.2 percent)* above the September 2018 estimate of 607,000.
The median sales price of new houses sold in September 2019 was $299,400. The average sales price was $362,700.
For Sale Inventory and Months’ Supply
The seasonally‐adjusted estimate of new houses for sale at the end of September was 321,000. This represents a supply of 5.5 months at the current sales rate
My best advice on this sector of the economy is not to over hype the new home sales data. We have taken a recessionary data line off the recession watch grid this year from this sector. New home sales were flagging a recession, and then control and core retail sales had weaker year over year growth prints as well. That part of the economy is looking better now, so that in itself is a victory for this expansion. Now we have to get back to the normal issues of why this housing cycle has been the weakest demand cycle in new homes and housing starts ever. However, for this year, 7% + year to date is a big beat in my eye.
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. The critical story for housing in 2019 is this V shape recovery that has happened due to lower mortgage rates. Don’t overhype this story; housing bulls tend to get ahead of themselves, which gets them in trouble later on when rates move higher. However, the most compelling story for housing this year is that the excess supply of homes has come down. Yes, housing starts are still a negative year to date. But, have the right setting for flat to positive growth coming soon to the U.S. economy from housing starts.
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