Reclaiming Common Sense

The August New Construction was released to zero fanfare.

This column produced a August Real Estate Forecast Article this week which examined the new construction data, the new home sales data, and the existing home sales data. We have seen considerable growth in new construction starts, units under construction, and completion since 2010. This column projected:

  • New Home Starts should have moved higher from the level seen during August 2017 and should have reached between 82,000 and 87,000 units.It was possible, not probable, that the starts number could comes in over 90,000 units.
  • Units under construction should have come in between 1.14 million and 1.20 million units. It was possible, not probable that the under construction level could soar to 1.36 million units.
  • Units Completed were expected to come in between 108,000 and 116,000 units. It was possible for upwards of 121,000 or 123,000 units could be completed.

These numbers were calculated using July to August Growth rates, August to August Growth rates, Current Year (January-July) growth rates, and rolling year (August to July) growth rates. All of the calculations were performed using non-seasonally adjusted data. What was recorded and what was reported?

Single- Family Starts Edged Higher to just over 79,000 Units. The Great Recession was a Housing Recession, a Jobs Recession, and a Retail Sales Recession. The Housing Recession was a New Construction Recession and an Existing Home Recession. Housing starts are needed to generate units under construction, to generate completions, to build new home inventory, to boost new home sales. It was thought that the new starts should have broken through the 80,000 units level this month. Seasonally adjusted the report stated that we dropped from an annualized rate of 878,000 units last year to 876,000 units this year. Last year we ended at 848.9 and we are 60,000 units ahead of where we were last August.  We have seen an increase of 10.4% from August of last year. The Rolling Year data paints a similar picture. There have been 909,000 single family units started during the past 12 months. We had 831,000 rolling year starts during August 2017. This is an increase of 9.5%. The Current year (CY) data is growing faster than the rolling year (RY) data which means that the starts are accelerating.

Units Under Construction jumped up to 1.147 million. We knew that 1.14 million should have been the floor. This is the largest number of units under construction since 2007

Units Completed Jumped to 117,000 Units. This is a level comparable to where we were during 1995. This means that we have  room to grow for five or ten more years. The peak data was during 2006 and 2006. It was thought that we could see completions between 108,000 and 116,000. There was an outside possibility of breaking the 120,000 level. This is good news. The seasonally adjusted data reported single family annualized starts up from 751,000 to 923,000 units. Total units completed were reported seasonally adjusted up from 1.091 million to 1.213 million units, The current year data shows that completions are at 788,000, up from August 2017 by 47,000 units, and up 119,000 from August 2016. We ended 2017 with 1.157 million units completed and 2016 with 1.059 million units completed.  The rolling year data jumped from 1.132 million units last August to 1.200 million units this August. This is a growth of 6.0%. Again, the growth of current year completions exceeds the growth in RY completion, so the completions numbers are picking up.

All real estate is local. New homes are sprouting up in old farm fields in the metropolitan Toledo area. The "South" has the most units under Construction, the most starts and the most completions. Prices vary by region. There is seasonality in construction, which is why many economists use the seasonally adjusted data. The seasonal factors used to convert the non-seasonally adjusted data to the seasonally adjusted data change by category, month, season, and year. It is better to compare this August with data from prior Augusts. It is better to compare where we are after 8 months this year as compared to last year and other prior years.  Improving New Construction data helps grow Retail Sales (MARTS) and helps increase the Gross Private Domestic Investment Numbers (GPDI) and the Personal Consumption Expenditures (PCE) that are used to calculate GDP. Ignore this data at your own peril. Great News!

It's the economy.