Reclaiming Common Sense

The Monthly Real Estate Reports are going to be released for January

New Home Construction, New Home Sales, and Existing Home Sales will spike

The housing industry is an economic stimulant. More new construction leads to more new home sales, more construction jobs, more retail jobs, more professional services jobs, and even more existing home sales. New home buyers are often existing home sellers. January tends to mean fewer starts, units under construction, completions, and sales compared to December, and more activity than last January.  Down can be up. It is also going to be important to watch the "seasonally adjusted annualized" start, units, completions, and sales.

New Home Construction tends to dip December to January and bounce January to January. The month to month data indicates that we should see a single family starts jump 8% to 12%, and that we should see a jump of 7% to 12% January to January. The month to month data indicates that we should see 74,000 to 77,000 starts, up dramatically from January 2019, and rivaling the January 2007 level. The January to January data indicates a value around 68,000 to 71,000.  Last year we started off very slowly due to the Government Shutdown, or Schumer Shutdown. Expect a number around 75,000 non-seasonally adjusted starts.

Units under construction had been rising rapidly, year over year, between 2012 and 2017, and have moderated a bit the past two years. That said, we are near an all-time record high for units under construction. We had seen levels in excess of 1.30 million units during the housing book of 2005 and 2006. Normally we have at least 1.00 million units under construction. Right now we are looking for a modest month to month growth of less than 1.00%, which would yield 1.171 million units to 1.177 million units. There is an outside chance for a spike of up to 10% January to January. If that happens we could eclipse 1.20 million units under construction.

Completions soared during 2019. It is expected that completions will drop dramatically, month to month and jump January to January, non-seasonally adjusted. We could see completions drop 23% to 27% month to month, to a level between 91,000 and 117,000 units. The January to January growth is expected between 3% and 13%, or between 83,000 and 97,000. The overlap is between 91,000 and 97,000, a sizeable spike from last year's 87,200 and possibly back to levels not seen since January 2006.

Be careful with the Seasonally Adjusted Annual Rates (SAAR.)  New home starts tend to peak during April. Last Year Starts peaked during July. If we have better months than expected the starts during May, June, or July, then the SAAR rates may decline very little or not at all during May, June, and July. The SAAR for Starts should rise through April. Completions tend to peak during June, July and August. This is when the SAAR for Completions should peak. Compare apple to apples, or in this case, January to January.

  • Starts Dec 2018 (1.142 M) Jan 2019 (1.291M) Dec 2019 (1.608M)
  • Under Construction Dec 2018 (1.154M) Jan 2019 (1.163M) Dec 2019 (1.192)
  • Completions Dec 2018 (1.068 M) January 2019 (1.261 M) Dec 2019 (1.277M)

We could reasonably expect all three categories to see then SAARs jump month to month this month. The December NRC report can be found here.

New Home Construction tends to lead to New Home Sales. New Home Sales have been rising January to January. The non-seasonally adjusted sales level can drop by 2% or rise by 8% this month. Again, do not be surprised if we see spikes January to January. We did not have a shutdown this January. The January to January data indicates that we could expect 51,000 to 57,000 single family units sold. The Month to month data indicates 46,000 to 50,000 units sold. We have not had a "50,0000 January" since January 2007. Expect around 51,000 to 54,000 new homes sold this January.

 Follow the bouncing Price Tag. The average sales price for new homes has been bouncing up one year, down the next, or higher to lower, depending on the month.This month the month to month data indicates an average sales price of $339,000 to $371,000. The annual growth indicates a range of $396,000 to $407,000. It seem unlikely that we will see a $400,000 level this month.  Expect something over $370,000 and under $380,000.

Inventory is the name of the game, and inventory could go either way this month. Inventory hit a multi-year high during January 2019. The level dropped throughout the year due to strong new home sales. The annual data is pointing to a level comparable to last January, between  349,000 and 352,000. January to January spikes in inventory mean that we could see in excess of 360,000 units. Something in the 340,000 to 345,000 range seems more reasonable.

New Home sales tend to rise January through March. Last year we had ten months with more than 50,000 sales a month, with January and December being the "shoulder months." A stronger January s expected because January 2019 had massive headwinds.

When the Seasonally Adjusted Annual Rate of Sales data is released it could be astounding. Last year the December 2018 SAAR was 564,000. January 2019 that number spiked to 644,000. We hit 725,000 units during August and 729,000 during June of Last year. December was a remarkable 694.000 units (up 23% annually.) If we even spiked 10% from last January then we would eclipse 700,000 units and hit 708,000 units. If we jump 20% from last January's level then we could hit an SAAR of 772,000 units. Expect a number over 700,000 and approaching 710,000 units.

Existing Home Sales are the bulk of the real estate market.  We saw the January 2019 Existing Home Sales (EHS) data drop below 300,000 units. The January to January data is expected to bounce just as the New Home Sales and New Home Construction data is expected to bounce up January to January. We could see six times as many existing homes sold this January compared to the New Home Sales.

Existing Home Sales are expected to drop month to month and bump higher, in general, January to January. The January sales level tends to drop 24% to 30% month to month during January. This would yield a level of303,000 to 331,000 units. The January to January data could drop by 3% (unlikely) or spike by 6%. This would mean that we could see sales of 303,000 to 329,000 by this standard. Corks should be popping if we eclipse the 319,000 level of January 2017. Expect a value between 315,000 and 320,000.

We are almost most certain to set a January Record Average Sales Price this January. The average sales price (ASP) for January has been steadily rising since January 2013. The month to month data is pointing towards an average sales price between $298,000 and 317,000. The January to January data is pointing between $291,000 and 298,000. Expect an ASP under $298,000 and over $288,000.

Inventory, the lack thereof, has been holding back existing home sales for five years. This column has discussed the record low December inventory levels since 2015. The lowest level of monthly inventory recorded since January 1999 was recorded during December 2019. December tends to be the month with the least inventory. Inventory is expected to rise 1% to 4% this month, to a level of 1.425 million to 1.596 million units. The January to January level is expected to drop up to 6% or grow by up to 5%. This metric is projecting a range of 1.408 million to 1.450 million. We should expect a level of 1.425M to 1.450 million. We should not be surprised if we approach 1.500 million units.

All real estate is local. New home sales prices are based upon the State, County, City, School District, Neighborhood, size of the home, upgrades, and motivation of the buyer and the seller. The same could be said for existing home sales. All of the data discussed in this article is non-seasonally adjusted data, except the SAAR data. Contact a REALTOR to find out what is happening in the existing home market. Some REALTORS specialize in the new home market. Do your homework. Some homes are "over-priced" when they hit the market, some are under-priced (for a quick sale,) and some are priced "just right. The inventory shortage could lead to bidding wars. Know how much you can afford before you buy.

This week we receive the New Home Construction (NHC) and Existing Home Sales (EHS) data. Next week we will receive the New Home Sales data. New Home Starts, Completions, and Sales are in expansion mode. Existing home sales for 2019 exceeded 2018 levels with a spurt of sales during December. Is the momentum there for another year or two or more?

The Housing Recession impacted the whole economy. Existing homes sold popped last month to boost the 2019 sales level past the 2018 level. New Home Starts popped. New Home Completions popped. More popping is expected this January.

It's the Economy.