Jack Dunn - Reclaiming Common Sense

The Rest of the New Home Sales Story

The January New Home Sales data was released at 10:00 AM Monday morning. The report received a tepid response. The people commenting on the report must not have read the January Real Estate forecast article published on this website. It was projected that   the number of units sold could range between 42,000 and 52,000 units, with a likely sales level of 45,000 to 46,000 units. The average sales price was projected between  $379,890 and $386,900. It was also thought that we could see the inventory level break through the 300,000 units level.

The January Average Sales Price set a new record, again. The average sales price came in at $382,7000. This fell roughly right between the anticipated range of sales prices. It was possible, not probable, that the average sales price could have burst through the $400,000 level during January.

The Rolling Year sales has jumped from 547,000 to 612,000 units.  The official annual rate of sale dropped from 643,000 to 593,000 between December 2017 and January 2018. Last year the official annualized rate of sale was 599,000 units. The rolling year value was 547,000. If we see a jump of 7.9% between January 2018 and January 2019 at the same 7.9% rate we saw between January 2017 and January 2018, we could be discussing an annual rate of sales next year of 660,000 units. Rarely is the growth curve smooth or steady. A drop of 1,000 units from January 2017 to January 2018 should not cause a drop of 6,000 units for the annualized rate of sales, nor a drop of 50,000 units from December to January.

The Current Year sales data is insufficient.This column uses the current year data as a possible trajectory for units sold. The more data points that are available the better the forecasting.  The earliest that a projection could be made is next month with two data points. It is important to recognize that next month the preliminary January data will be released and the following month the "final" January data will be available. When the January final data is released we will have three data points for this year and a better sense of the trajectory. The majority of Sales will be completed by June, and by September the data will be fairly well set.

Inventory is rising. The January under construction data was solid for January. The starts data was strong. The completions data was strong. We are not at the level of starts, completions, or units for sale that we had during the periods of time between 1994 and 2008. It is not possible to set record units sold if there are not more units available for sale. The report indicates that there is a 6.8 month inventory level. If we sold 44,000 units a month and we have 299,000 units for sale then there would be a 6.8 month supply. The number of units sold jumped into the 50,000 to 60,000 range last year between February and June. This means that we really do not have 6.8 months of units available. If 55,000 units are sold then that number is closer to 5.4 months.

The data is the data. This is a national picture. All real estate is local. You need to confer with real estate professionals in you community to help you asses your local conditions. One neighborhood could have a over-supply of homes while another could have a housing shortage. The dollar per square foot for new construction will vary from community to community, city to city, state to state. Units sold, in general, are improving. The average sales price is climbing for the same month data. It is possible that the average sales price might drop below $300,000 for February. Last year the average sales price was over $300,000 for 11 of 12 months. The average sales price peaked during November as buyers and builders were trying to complete transactions before the end of the year.

This data was better than has been reported elsewhere. This article is based on the non-seasonally adjusted data.Seasonal factors used to convert the non-seasonally adjusted data to the seasonally adjusted data change from month t month and year to year. Seasonal factors can skew the seasonally adjusted data high or low. Buyers do not get to seasonally adjust their sales price or their mortgages. The indications are for another solid year of new construction sales. It is also still apparent that it will take us many years to reach the 2005 peak unit year.

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