Reclaiming Common Sense

New Home Sales are a vital indicator of the strength of the economy as a whole Often people sell existing homes to buy new homes. When people build new homes we see an increase in construction jobs as well as an increase in retail sales. New Homes "require" new furniture, new electronics and appliances, some new home and building supply projects, and occasionally a new car or two for the new garage. The depth of the housing recession  has been under-reported elsewhere. This month's new home sales data highlights how bad it was and how unremarkable the October New Home Sales data really was.


We Saw Fewer Sales this October than October 1983, October 1992. This has been a common theme this year. If you read prior articles published in this column you will see that the units sold have been sluggish.  We saw a surge in units sold through 2005 and a surge in sales prices through 2006. The housing recession began well before the rest of the economy tanked during the "Ike Spike" in oil prices caused by Hurricane Ike. There were only 45,000 new single families sold during October 2016. This is fewer than what was sold during October 1983, 1984, 1985, 1986, 1987, 1988, or October 1989. It was also a slower pace than the month of October for the years 1992-2007.  You may hear elsewhere that this was a jump from last year's data. This is comparing a "D" to and "F." We didn't fail last month. We got a passing grade.


The Average Sales Price for October declined for the second straight October.  This could be a one-off glitch. We have seen steadily improving average sales price data for the same month comparisons. This may need further examination during future months.


Will we see 550,000 New Homes Sold This Year? Last November it was projected that we were on pace to sell 508,000 units over the next year, by the authors of the report, not this column. That rate peaked, according to them, at 622,000 units during the Summer. Now that number is projected to be 563,000 units. WE are trending just slightly better this year than we were during 1980 and 1990. WE saw total annual sales those years of 545,000 units and 535,000 units respectively. We are trending at a rate slower than 1992 when we sold 608,000 units. We may barely eek out 550,000 units.This is much better than last year's 501,000 annual units sold. This is also a far cry from the peak units sold  1.283 million homes during 2005. That number dropped to 1.052 million during 2006.


The Rolling Year Data is worse than 1983, 1990, 1992. If you look at the Running Year graph we saw a housing 'crash' during the 1970s and early 1980s. We bottomed during 1982. It was during October of 1982 that we were at 307,000 annual units sold. That following year we were at 603,000. It has taken us from October of 2011 to October 2016 to increase from 301,000 annual units to 557,000 annual units. Five years versus one year. Will it take us 13 more years  to reach the peak we saw during 2005 as it did from 1992  or will it take 22 more years to grow from the bottom to the top as it did during 1983?


Downward Revisions to Units Sold and Inventory are Daunting. We have seen regular downward revisions to the monthly units sold since this Summer. We have also seen the inventory numbers revised downward month after month. This means that the annualized, rolling year rate of 563,000 units by the authors of the report may be revised down each of the next two months.


We need full-time jobs to qualify for mortgages. We have shed full-time jobs the past two months. Will the election results increase optimism in the economy?


It's the economy.