Jack Dunn - Reclaiming Common Sense

There are three real estate reports that will be released over the next two weeks that are very importants: The New Construction Data, including starts, completions, and units under construction, the Existing Home Sales data, and the New Home Sales data.The "Great Recession" was actually a combination of recessions: The Housing Recession, The Retail Recession, and the Jobs Recession.Jobs are the key. We did not recover to the July 2007 Pre-recession full-time employment level until July of 2015. We then lost jobs, non-seasonally adjusted jobs full-time jobs during August 2016 through January 2017. We started recovering full-time jobs February and expanding this Summer. You need full-time employment to qualify for a mortgage. The new home sales market was impacted the most, dropping to levels not seen during the past generation when the market bottomed during 2010. The existing home market was impacted significantly, although not to the extreme of the new construction market.


The New Construction Data is pointing higher. The  biggest surprise to most people may be the starts number. It appears that the number of starts should grow as compared to last July and this past June.Starts were over 72,000 units last July. June was incredibly strong, so if we even matched that level of starts we would see a level of starts not seen since before the recession and it would be comparable to the levels recorded during 1992 and 1993.  The under construction data is showing a huge potential inventory.Once again we can expect June to July growth and July to July Growth. We should see a number of close to 1.1 million units under construction. Ditto completions. We should record month to month growth and July to July growth. We could approach the completions level recorded during July 1992. We lost thirty years of starts and completions growth during the course of just five years. It may take us another thirteen years to return to our 2005 starts and completions level. The rolling year trend datafor starts and completions is higher than the current year trend line. This means that we can expect to end up higher than we did during 2016 for starts and for completions.Note that the starts growth is slower than the completions growth. Also note that rolling year starts is faster than July 1991 and slower than July 1992. Completions are comparable to July 1992 and slower than July 1993.


The New Home Sales Data is pointing higher, as well. The starting point here is roughly the same whether we are talking July of 2016 or June of 2017. The trend data here is heading higher. for both the current year data and the rolling year data.  There was a huge spike, relatively speaking, between July 2015 and July 2016. It is possible to see a similar spike this year. It seem more likely that the completions may be closer to 60,000 units than 65,000. The average sales price should also rise beyond last July's record average sales price and higher than last month's record average sales price for June.


 The Existing Home data show a similar trend for improvement. The Average Sales price for July has been improving since July 2012. The number of units sold is trending this year with the sales we saw during 2002. The busiest closing day for existing homes, historically, is the final day of June, as people want to move close to the Fourth of July Weekend. People also want to move prior to the start of school. Normally the month to month number of units falls June to July, as does the sales price. Normally the units sold, and the average sales price increase from July to July. The Current Year and Rolling Year data indicates that we are trending with 2002 levels.  This is pretty good considering peak units sold happened during 2005. Could we see 2002 levels of July existing home sales? Could we see over 600,000 units sold? The largest uncertainty is the impact of inventory on the units sold and the sales price.


Inventory continues to remain at historic low levels for the current month. The inventory level was at a record low for December through June fr their respective months. Supply and demand means that lower supply, assuming constant demand, will drive prices higher. We have not had a July Inventory level below 2 million units since July 1999.  The inventory level could increase from June's 1.960 million level - that is unlikely. Inventory is comparable to, yet lower than the 2002 level. This could mean higher prices and shorter days on market for existing homes this year.


Units sold have been trending with 2002. If this trend continues we should see over 540,000 units sold. This would be an improvement over July of 2016. Will it be better than July 2015? The data indicates a number of 560,000 or greater is possible.Thia would be drop from June and an increase from July 2016, A similar scenario could be played out for the average sales price with a potential average sales price between $299,900 and $304,900.


Managed Expectations are important in real estate. You have to know when a home is overpriced, under-priced, or just right. All real estate is local. This is a snapshot of the health if the two housing markets from a satellite perspective. The housing market continues to improve. If you thought about selling within the past few years, now may be the time to act. If you are buying there may be an inventory shortage for existing homes and a necessity to "overpay" for the home you want to buy.  There may be an oversupply of new homes.

  • New Construction Data will be released August 16th.
  • New Home Sales Data will be released August 23rd
  • Existing Home Sales data will be released August 24th


It's the economy.