Jack Dunn - Reclaiming Common Sense

New home sales and existing home sales are economic multipliers. New home construction generates jobs and retail sales. New home sales generate jobs and retail sales. The same can be said about existing home sales. Each sector has some seasonality.  If you examine the non-seasonally adjusted data trends can be observed and projections can be made based on normal month to month growth and same month to same month growth. 


New Home Construction should see improvement over last year for Starts, Units Under Construction, and Completions. The data for starts spiked during 2006 and hit historic lows during 2010 and 2011. We saw a spike in Starts last month. we could see a similar spike based on month to month and June to June growth rates.  We should have over 100,000 starts in a healthy economy. We have a healthy economy. The problem is that we were last over 100,000 units started during June during 2007 as the economy was cooling. Construction jobs have been increasing in number and in wages. We may be able to return to pre-recession construction levels when pre-recession construction jobs "return to normal."


Units under Construction should exceed 1.13 million units, approach 1.17 million units. The units under construction number has been moving much higher every year since the recovery began during 2011. There have been strong year to year, same month, spikes in units growth. We may be seeing some slowing as we return to levels comparable to the early 2000s. We may have had too much under construction during 2004-2006. If we have 1.12 million, 1.13 million or 1.17 million units under construction this month then we will still be below the 1.2 million level, which appears top be a saturation level.


Completions should exceed 110,000 units and approach 125,000 units.  We can see an increase in new home sales only when we see an increase in new home inventory. We only see an increase in inventory when we see an increase in completions.  We need to break through the 120,000 unit level to return to normalcy.


New Home Inventory has remained below 300,000 units. That number should improve in light of the starts and completions data.Will this be the month that we break through 300,000 units? Will sales deplete inventory as quickly as they are added?


New Home sales could break the 60,000 level and approach the 70,000 level. Once again, sales have been lagging by historic measures. Sales have been improving, same month data, basically every year since we saw sales hit historic lows during 2010 and 2011.


The Average New Home Sales Price should remain under $400,000 and above $375,000. Home prices tend to have sensitivity points, and as we approach the 400,000 level there is the "25" level at $375,000 and the "99" level at $399,000. We have broached the $400,000 within the past 12 months, only to have the that price revised down to under $400,000. Shelter inflation has consistently been at or above 3%. That would tack on another $11,000 in average sales price. Is $380,000 possible? Yes. New Home Sales tend to peak during April, May, or June, with a similar surge each month, and with a similar level of sales during December as buyers and builders make end of the year deals. June could see lower sales than May 2018 and higher than June 2017.


We normally sell ten times as many existing homes as we do new homes. Last June we hit 600,000 units. We only saw volumes higher during 2003, 2004, 2005 and 2006. There was a "pop" in units sold during June 2015. Inventory, same month inventory, has been decreasing since 2015. Peak inventory is normally achieved during July, as people are trying to move before the end of Summer. People want to move over Holiday weekends. June 30th, or the Friday closest, is traditionally the busiest day of the busiest month. People will also try to close at the end of August so they can use the Labor Day Weekend for unpacking. Inventory held back sales a bit last month. Even though inventory is lower than June 2000, or it most likely is lower, Sales should move up 3% to 5% to the "Six-teens."


The Average Sales Price should edge higher due to Supply and Demand. The average shelter inflation has just slightly exceeded 3% this year. We could see an annual rate approaching 5% this month. The rate of growth in average sales price is not as steep as it was during the run-up to 2005 and 2006. This increase in sales price should be sustainable. 


Real estate signs are budding like flowers. Some blooms have peaked while others are peaking.  Expect year over year growth in Starts, Under Construction, Completions, New Home Sales, and Existing home sales. Expect upward pressure on prices. We are six months into the cycle, so it will be easier to see where we are heading based on the rolling year data, the data from the most recent 12 months, and it will be easier to see with which years we are trending for current year data and project out to the end of the year. The headline annualized sales data tries to project out 12 months from release date. Those values are rarely the final values achieved. Some months the are "optimistically high" and others shock people when they become "pessimistically low." Expect good news over the next few weeks.


It's the economy.