Jack Dunn - Reclaiming Common Sense

Are We Seeing Sustainable Improvement in the New Home Market?


New Home Construction and New Home Sales are vital for the economy. New home construction generates construction jobs and other jobs in related sectors. New Home Construction lead to new home sales. New home sales can free up some existing homes for sales as people with existing homes move up in the market. New home sales tend to have a higher sales price than the existing home sales market. The real estate market peaked during December of 2005. We saw the most units sold during 2005. Sales prices continued to climb through 2006.  We are nowhere near the level of construction or sales that we saw prior to the current recession. We have been trending with data from 1983 and 1992 during 2016.


Forecast columns, such as this one, help to manage expectations and place some perspective on what the numbers really mean when we hear them reported. What should we expect from the new home construction data and the new home sales data this month?


New Home Starts have been relatively strong this year. Last November we saw a strong spike in starts. Here is what we have to keep in mind:

  • New home starts are trending at a slower pacethan 1983 and 1992, year to date.The good news is that we are trending at a pace better than 2015.
  • Starts can either increase or decrease as compared to October. That seems like a fairly obvious statement. Some categories and some months we see definitive trends. The November Starts data is ambiguous
  • The bad news is that we have to hit roughly 65,000 units to maintain the current pace. We have seen 668,000 non-seasonally adjusted (NSA) starts year to date (YTD) We are trending towards 800,000 units.


Total Housing Units Under Construction are Surging. The Housing units under construction data includes multifamily housing. We have seen a quicker pace of total units under construction surge more than single family units under construction. We are also seeing a surge in rental costs.

  • We should see 70,000 to 80,000 more units move into the under construction category
  • We should see the total units under construction bump up to over 1 million units
  • If we surge to over one million units under construction that would place us at a pace we saw during 2001 and 2002.
  • Expect a number of units under construction between 1.02 million and 1.04 million

Privately Owned Housing Units Completed is trending towards 1.04 Million units. We need to see roughly 90,000 units completed  each of the next two months to ho that goal.

  • Units Completed are occuring at a quicker pace than 2015 when we hit 968,000 units
  • Units completed are lagging behind where we were during 1983 and 1992.
  • We have not seen 90,000 units completed during November since 2007.
  • We saw over 90,000 units completed every November between 1992 and 2007
  • Was last year a fluke or a strengthening in a multi-year trend?
  • We need to see 90,000 units completed. We saw 81,000 units completed last November. Expect a number between 75.000 and 85,000 units completed.


New Home sales should exceed 40,000 units - Will they exceed 45,000? The story that you will hear, hopefully, is that this will be the most sales seen during the past eight to nine years.

  • We have seen 483 units sold this year and will exceed the 501,000 sold during 2015. We saw 36,000 units sold during November 2015.
  • We are trending better than we were during 1970 (530,000 units,) 1990  (535,000 units,) and 1980 (545,000.) (Final year numbers)
  • We are trending at a slower pace than 1976 (647,000) and 1983 (622,000) and 1992 (608,000)
  • We saw a bump from 39,000 during November 1982 to 45,000 during November 1983
  • We saw a bump from 39,000 during November 1991 to 42,000 during November 1992.
  • We saw 45,000 units sold during November 2007.We saw 45,000 to 47,00 units sold the past three months.
  • We are trending toward 550,000 to 575,000 units. We need 77,000 units to hit the mark. We will probably sell more units during November than December.
  • Expect a number between 40,000 and 45,000 units sold. Do not be surprised if the number comes in between 45,000 and 50,000 units sold.The number will be right around the 45,000 mark.


Why spend the time attempting to project where we may or may not be heading? We have seen a number of reports and revisions where the new home market appears to be cresting one month, turning down the next, then being revised to a higher path the month after that. New home sales are the ultimate sentiment of the economy. That being said, existing home sales are the penultimate (one step below) indicator of economic sentiment.


It is difficult, if not impossible, for people working part-time jobs to qualify for a mortgage payment. We have a record level of people working two part-time jobs. We have a near record low level of participation. If you aren't participating on the economy, if we do not have a strong level of full-time employees we cannot have a strong housing market. The housing market is improving. It is no longer failing. It is getting a passing grade.


It's the economy.