Jack Dunn - Reclaiming Common Sense

Real estate activity is an economic multiplier. New home home construction require construction workers, construction materials, new appliances, new furnishings, new landscaping, lenders, loan processors, appraisers, movers, painters, and a host of other retail needs and service needs. The same can be said regarding existing home sales. The Recession of 2008-2010 was more than one recession. The "Great Recession" was a housing recession, a jobs recession, a retail recession, a wage recession, and a revenue recession.

Recession, Recovery, Expansion. The common thought in economics is that you are either in recession or expansion. This is an incomplete thought. Do you have "thin clothes" and "sweatpants?" No. There is a period between been lean and being big. The problem we have seen is that we have had an incomplete recovery. New home construction and new home sales hit generational lows during 2010. It took over 40 years to achieve the highs of the 2005 and 2006 new home markets. Until we have recovered lost levels of activity have we really started an expansion? We need to look at the data from a current era perspective and a long-term perspective. There are three main real estate reports to examine, the new construction report, the existing home sales report that will come out on July 23rd, and the new home sales report will be released July 25th. This column produced a June Real Estate Construction Forecast Article. What was recorded? What was reported?

New Construction Starts. It was projected that new construction starts should have broken through the 90,000 level and possibly the 95,000 unit level. The historical norm for June has been over 100,000 units. It is "impossible" to see an increase in sales without an increase in completions. Completions depend on units under construction. Units under construction depend on starts. New Construction Starts were unchanged from June 2017. This is not good news and it is not bad news. The starts data show that the rolling year starts are up from Last June and the Current Year (CY) starts are doing better than both 2016 and 2017, and 2009 through 2015. Rolling Year (RY) starts are up 11.6%. Current Year Starts are up 13.8%. It is good when CY is greater than RY.

Units under construction have been growing rapidly. It was projected that the units under construction should exceed 1.12 million units. The one million level is critically important. A level of 1.2 million is rarely seen. The forecast article noted that the growth in units under construction has been slowing. Would we exceed 1.2 million or 1.3 million or even 1.17 million? We edged higher from last June, by 4.8%.

Completions have been picking up place. The historic level of completions has been well over 100,000 units and even over 120,000 units, June completions were under 60,000 during June 2011. We have a healthy, strengthening, completions segment.  This segment of the data has shown, considerable improvement lately. It was projected that the June completion should have been reported between 113,000 and 125,000 units. The actual number came in at 113,500. The data revealed that CY Completions are lower tan 2016 and 2017. The Rolling Year data is higher than last June. We could be at an inflection point, or the completions may surge through the end of the year.

The new construction data will impact the new home inventory level that will be reported next week. The normal level of new homes for sale was in excess of 300,000 units prior to the recession. We have been trending upward for years. The completions data indicates that the inventory level could increase this month. If we break through the 300,000 then we will be returning to levels seen during June 2001. We need inventory to sell in order to sell it.

This data was good, not perfect. We are seeing improvement in the new construction sector. Completions and starts see a little "laggy." Hopefully completions will edge back higher for the current year data. Single Family completions edged higher from 71,300 last June to 75,800 this June. Starts remained at 73,800 for single family homes.Buildings with 5 or more units dropped from 31,900 to 26,700.Completions dropped from 37.500 to 37,200. Builders may be slowing multi-family housing as more people return to work and more people can qualify for mortgages rather than rent. The recession is over. The recovery is on-going. Expansion is yet to come.

It's the economy.