Reclaiming Common Sense

New Home Construction, New Home Sales, and Existing Home Sales are Economic Multipliers. All Could see Improvement June to June

New Home construction is needed to generate new home sales. Existing home sales are the largest part of the real estate market. This year we have seen some of the best New Home under construction data, new home completions data and new home sales data since 2007, year to date. Existing home inventory is starting to improve on units sold and inventory. What can we expect this June?

June New Home Starts should be better than June 2017 and June 2018. We have "hit a ceiling" at rough;y 84,000 single family starts. We are trending between the 2017 year to date (YTD) starts and the 2018 YTD starts. Will we come in between 83,500 and 83,800? There is a possibility for 81,000 starts based on May to June growth and there is the possibility of up to 91,000 starts based on June to June growth. Expect a number between 84,000 and 86,000.

Single Family starts tend to peak during April, May, or June. We had 79,000 starts during March, 83,000 during April, and 78,000 during May.  We have seen strength during June during the past two years. This confirms the idea that we could see a spike this month. It does not appear that we have peaked this year.June, July, and August should all be higher than March, and could all be higher than our April Value of 83,100.

Units under construction have been growing rapidly during the past six years. The Units under construction dropped to generational lows during the Housing Recession. The Same month growth data has been projecting faster growth than the month to month growth during the past few years. The slowing of the growth rate may have to deal with the shift from starts to completions. The 1.20 million level is going to be a tough barrier to break. We may not want 1.20 million units under construction. The value this month looks to be 1.140 million.

Completions have been outpacing the 2018 levels all year, except May.  Completions have been outpacing the YTD levels for 2008 through 2018.This slight drop from May to May could be something or it could be nothing. It is anticipated that the June date will exceed the June 2018 data of 108,600. The month to month data is indicating 103,000 to 113,000 units while the June to June data is pointing towards 117,000 to 128,000. There is no overlap. The month to month data tends to dictate what to expect in these situations. Expect a number under 113,000 and over 109,000. Expect to maintain this "best completions year since 2007" pace for the remainder of the year.

New Home Sales should grow month to month and June to June. The month to month data is pointing towards 56,000 to 61,000 units sold. The June to June data is indicating 54,000 to 59,000 units sold. We are trending with the sales data from 1988, 1994, and 2018. We are looking to have 675,000 units sold by the end of the year. This would be a spike of nearly 10% from last year's 617,000 units. This should be our best June since 2007. We won't reach 73,000 homes as we did during June 2007. Expect a number of units sold between 56,000 and 59,000 units.

We should set a June New Home Average Sales Price Record. We have broken through the 370,000 level the past two Junes. The Month to month data is indicating an average sales price between $365,000 and $392,000. The June to June data is indicating a range between 373,000 and 388,000. Expect a number around $374,900 to $384,900.

New Home Inventory has been rising to healthy levels during the past year. A healthy level is between 300,000 and 350,000 units. Last year we were at 308,000. This past May we were at 332,000. The month to month data is leaning towards inventory of between 338,000 and 342,000 while the June to June data is leaning toward 335,000 to 345,000. Inventory should rise to roughly 340,000 units.

Existing Home Inventory has been the best kept secret during its slide and during its recent rise. We hit a "twenty year low" during January 2017. The data is only available back to 1999. We started seeing a recovery of inventory during August of 2018. You cannot sell what is not available for sale. Inventory is expected to grow to between 1.98M and 2.01 million based on month to month growth and between 1.95M and 2.01 million based on June to June data. If this number hits 2,000 million, as expected, then there should be corks popping somewhere.

Existing Home Sales have been improving the past few months, regardless what you are hearing elsewhere. We hit peak existing home sales during the month of June. The REALTORS' annualized sale level should spike this month, and drop thereafter. This happens every year. Current year sales are trending between 2015 and 2018. We saw 570,000 and 572,000 sales during those two years during the month of June. The month to month data is projecting 572,000 to 626,000 units sold. The June to June data is leaning toward 575,000 to 581,000. We have not been over 600,000 units very often, most recently June 2017 and then June 2006. Expect a number between 580,000 and 600,000 or 590,000 units.

Expect a June Record for Average Sales Price. The month to month and June to June data indicate between $323,000 and $328,000."Shelter inflation" has been consistently between 3.0% and 3.5%. Last year we were at $313,000  A value around $324,9000 is "virtually assured."

The Great Recession was Four Recessions in one. We had housing sales peak during 2005 with average sales prices peaking during 2006. We had peak employment, and peak jobs, during July 2007. The retail sales data was the last to be impacted and the first to recover. The three recessions "created" the GDP recession. We have a record level of Jobs and workers, non-seasonally adjusted. These workers are earning record June Weekly wages. People need two years of continuous employment, preferably  permanent full-time positions, not seasonal positions, to qualify for mortgages. People have to know that they can sell their home for more than what they paid for it and they have to know that they can afford to buy their next homes.

We are not in a recession. "All recessions" are jobs recessions. Unemployment is still trending lower year of year. Jobs are still rising year over year. We still have record levels of Job Openings. Inflation is low. Participation is improving. Retail sales are still on track for another record year. The inverted yield curve is being created by negative long-term bond rates in the European Union. If you can invest in the US and get positive yields versus the EU and negative yields, which would you do? AS investors buy more bonds the demand drives prices up and yields down.

Are you waiting for a rate cut? We were told to anticipate three rate hies during 2018 and two during 2019. Then we were told to expect four and one. Then some mental midget proposed a possible fifth rate hike during the government shutdown. The current discussion is a single rate cut either during July or September. Now another mental giant is saying that we should anticipate twp, three, four, or five rate cuts during the next two years. No. We should get one cut, possibly this month, to calm markets and to "dis-invert" the yield. We might then get one more rate HIKE by the end of the year in order o have some room to cut if the economy slows. The Federal Reserve is the US Federal Reserve, not the International Monetary Fund. We can only work with what is happening in the US economy. We must lead by example. If you are waiting to ht a lower mortgage rate, don't. The interest rates were at 10% during 1990 and dropped roughly 1% a year until 1995. When interest rates dropped below 7% people were gobsmacked. It was cheap money at 6%. It was a dream come true at 5%. Eventually interest rates will hit 5% again. Contact your REALTOR and your loan officer.ool d

All real estate is local. This data discussed in this column has been non-seasonally adjusted national data. The headline numbers will be seasonally adjusted. The things that determine sales prices are location, condition, amenities, and the motivation of the buyers and the sellers. Prices are impacted by the state, county or parish, municipality, school district, neighborhood or condominium association, and style of home. Some years neighborhoods or price ranges are hot and then cold the following year. Sometimes there is an under-supply during June and an oversupply during May.

The new home construction data, new home sales data, and existing home sales data are pointing to improving conditions - not to hot, not cold. Slow and steady will win the race.

It's the Economy.