Jack Dunn - Reclaiming Common Sense

The New Construction Sector is One of Our Economic Engines


The monthly new construction report gives us insight as to what could happen in other sectors: Job Creation, New Home Sales, and Retail Sales, to name a few.  You need more workers for more starts, more units under construction, more completions, and more new home sales. New home sales could spur an increase in existing home sales as people sell existing homes to buy new homes. New home sales could take some pressure off the existing home inventory shortage.  This column produced an article "May Real Estate Forecast: How High?" That forecast article projected that we could see:

  • between 84,000 and 91,000 units started
  • between 1.08 million and 1.12 million units under construction
  • between 108,000 and 112,000 units completed.

These ranges were based upon month to month growth and same month growth (may to May.) These levels of units started, under construction, and completed would continue the trend that started during 2010 and 2011.  These levels of activity would be the highest, non-seasonally adjusted, for the month of May since, and possibly including, May 2007. Will anybody report these potential levels as the best during the past decade? That was a question.


Starts Spiked.  Last year we had 76,900 starts during the month of May. This Month we saw Starts Spike to 88,000. This is comparable to where we were during 1991 as the economy was slowing. It is better than we were during 1992. This is something that this column has been watching because it gives an idea of how long it may take to reach 2005 and 2006 levels of construction.


Under Construction Continues to grow. Last year we had 1.077 million units under construction during May. This May we had 1.135 million units under construction, The pattern is similar to the starts cycle.  We need starts to build on the under construction number. We need units under construction to generate completions. We need completion to generate sales.


Completions broke the 100,000 "ceiling." Last Year we had 98.1 million units completed during May. This level of completions is higher than May 1995 and higher than May 2008 through May 2017, May only data.  This means that the Starts data, the under construction data and the completions data all performed better than projected.


The Rolling Year Data and Current Year data paint similarly optimistic pictures. The Current Year sales are running between 1992 and 2017 levels. The same can be said regarding the completions data, there is just a larger spread, and the 1983 data started fading around May of 1983. The Running Year data has been spiking for Starts and continually growing for completions. 


Tomorrow we will receive the existing home sales data where it was projected that we will see a record May average sales price, improvement in units sold, and a continuing improvement in inventory, although we could still be at the lowest May Inventory level since 1999.


Next week we will receive the new home sales data. Once again, we should see a May Record Average Sales Price, improving units sold, and an improvement in the number of units for sale. This good news is being ignored in place of illegal immigration and the separation of families, as well as the Servergate Investigation Hearings and Report. Which is more important to you?


It's the economy.