For many years I have talked about how the housing industry liked this one line.
“We have no homes to buy; how can sales grow when we have no homes buy.”
My approach for many years was that the monthly supply for new homes was always higher in the previous expansion than any period from 1996-2005. This goes with my base thesis that from 2008-2019 we would have the weakest housing recovery ever and that housing starts won’t start a year at 1,500,000 until the years 2020-2024. This means we get new homes sales to start a year above 737,000. This was never an inventory problem; this was a demand one. Finally in year 2020 we are here with demand and the monthly supply levels are acting accordingly.
From Census: https://www.census.gov/construction/nrs/pdf/newressales.pdf
New Home Sales
Sales of new single-family houses in August 2020 were at a seasonally adjusted annual rate of 1,011,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.8 percent (±10.5 percent)* above the revised July rate of 965,000 and is 43.2 percent (±19.5 percent) above the August 2019 estimate of 706,000.
The median sales price of new houses sold in August 2020 was $312,800. The average sales price was $369,000.
For Sale Inventory and Months’ Supply
The seasonally-adjusted estimate of new houses for sale at the end of August was 282,000. This represents a supply of 3.3 months at the current sales rate.
Also, I talked about for many years how the MBA purchase application data will never hit 300 until years 2020-2024.
Its Magic, look where we are at this week, over 300, pre-cycle highs in demand came right in the year 2020. 18 straight weeks of double digit average growth running a tad above 20% year over year. We are making up for those 9 negative year over year prints we had during the worst days of Covid19.
From Calculated Risk:
However, the existing home sales data, which is still a negative year to date, needs more context with its discussion. This week I tried to add some more light to this year for Housing Wire.
Context is key with 2020 housing market data
New home sales are up 15% year to date and 43% year over year. Remember, these kinds of sales numbers can’t continue forever. The key is that the monthly supply for new homes is below 6.5 months; this means housing starts have legs to walk higher. This sector benefits from lower mortgage rates more than the existing home sales market but also gets hit harder when rates go up.
Show discipline here and always be the Detective not the Troll.
Be mindful that even a 10-year yield at 1.94% and higher can cool this market down. More on that topic here.
All in all, considering that we have had the worst health and economic shock in our history in 2020, housing held up well as Demographics and Mortgage Rates drive it.
From Advisor Perspective
Logan Mohtashami is a Lead Analyst for Housing Wire, financial writer, and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami, now retired, was a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987.