Jack Dunn - Reclaiming Common Sense

The Real Estate Sector is a multiplier sector - What happens in the real estate sector has spin-off impacts on retail sales, jobs, banking, and other sectors. The first report on the real estate this sector is the new construction data data for April. The second will be existing home sales data for April. The third major report will be the new home sales data. There are three main things to examine in the new construction data: New home Starts, New Homes (units) under Construction, and New Home Completions. It is important to compare the data from this April with the data from last April, and other April data, in general, and the revisions to the February and March Data.

New Home Starts Better than 2008-2016; Worse than 1983-2007. The existing home market peaked during 2005 for units sold and 2006 for Average Sales Prices.  New Home Construction cannot spin on a dime. Builders make money by building. We need starts to move to under construction homes to move to completions to move to sales.

The Number of Units Under Construction are near the levels seen 2004-2007. The pace of growth, the change from April to April , is up 7.9%, faster than most years, slower than the past four Aprils. The surge in units under construction may less the strain on the existing home market where we have seen a shortage of home for sale. There were less than 1.9 million existing homes for sale during March.

Completions are Improving - Still Slower than 1993-2008. The volume of completions were half (52.5%) of what they were during April 2006.We need completions to generate sales, as mentioned previously in this article. Can we expect sales to improve if we do not have starts or completions? Not really. We may see a conversion of some existing home buyers to new home buyers. That could consume supply before it could be replenished. There is also a premium for new homes compared to existing homes as it pertains to the Average Sales Price.

The Revisions and The Trends. Earlier today this column tweeted out some information regarding the revisions. The rolling year data for new construction starts hit 798,00 units, comparable to the 789,000 units sold as of April 1983 and slower than April 1984 through April 2008.   The completions data has a similar message. The 1.095 million units completed was comparable to what we saw during May 1992 when there were 1.093 units completed during the prior twelve months. We saw completions at a slower annual rate than was recorded during April of 1993 through and including December of 2008.The data for February and March completions were revised upward while the February and March Data was revised downward. The February and March Completions data was revised downward, as well. There was a notable spike between March and April Completions from 1.054 million to 1.072 million units.

The data was good. The revisions were mixed. We are doing better than we have in almost a decade. The problem is that the levels seen during the  housing recession, hitting bottom during 2011, were levels not seen since prior to 1975.Will we see a peak and a trough before we return to levels seen during 2004-2007? Time will tell.

It's the economy.