New Home Construction has been more about Completions than Starts this Year
New Home Sales have been Spiking This Year - Existing Home Sales Moving Higher
The new home construction data is important to our economy. They create new home sales. They create construction jobs, retail jobs, professional business service jobs, financial activity jobs, and other synergistic jobs. New home sales are a smaller part of the economy than the existing home sales. Existing home sales have been held back, until recently, due to a lack of inventory. Inventory was drawn down last month as sales exceeded expectations. The New Home construction data is released on Tuesday December 17th. The Existing Home Sales data is released Thursday December 19th. The New Home Sales Data is released Monday December 23rd. What can we expect from the November data?
Seasonally Adjusted Annual New Construction numbers can be misleading. The headline data is the "seasonally adjusted annual _____" number, whether it is the Starts data, or the Completions data or the Sales data. New Home starts tend to peak during April, May or June. New Home Completions tend to peak during June, July, or August. New Home Sales tend to peak during March. This means that the seasonally adjusted annualized data roughly peaks around those months and that they should decline from the middle of the year to the end of the year. The mainstream media is apparently oblivious to these annual patters or they are attempting to spin the data in order to create the appearance of a weakening economy or their are oblivious as to what the data really means. This time of year we normally see non-seasonally adjusted month to month declines in activity, across the board, and same month growth.
Non-seasonally adjusted New Home Starts are expected decline month to month and expand November v. November. Last year was the "Year of the Start." That changed late during the year as Starts activity trended toward Completions. New Home starts last year dropped November to November from 69,100 to 58,500, This November the opposite is projected. We had 79,400 starts during October. It is highly unlikely that this level of activity will be maintained this month. Normally we see a month to month drop of 8% to 18% during November. This would give us a range of expectations of 65,000 to 73,000 units started. The annual change is expected in the 62,000 to 67,000 level. We have had 751,000 starts during the first ten month of the year, or roughly 75,000 units a month. We are trending with the Starts data for 2017, when we had 69,000 starts during November, and 2018, when we had 58,000 Starts. This means that the "absolute" most number of starts we should see is 75,000 units. Starts have been hovering around the 80,000 level since June. Normally we see a drop of roughly 10,000 starts between October and November, placing the expectation around 69,000 units. It is more likely that we will be reported at the 65,000 or 66,000 level where the month to month and November to November data overlap. Down can be up.
Units Under Construction are approaching historic highs. Units Under Construction started soaring during 2011. The annual growth rate has been slowing since 2016. We have been growing. The under construction level is expected to be unchanged or grow by just over 1.00%. The November to November growth rate is expected to be be between 3% and 8%, well off the 10% rate we saw during 2015, 2016, and even 2017. This means that we should have at least 1.1775 million units under construction and possibly as many as 1.19 million units. This is still below the under construction levels recorded during the 2005-2007 period.
Completions are expected to continue surging. Last year was the "Year of the Start" while this year has been the "Year of the Completion." The year to date completion data is just over 1 million units at 1.0295 million units. We could anticipate 103,000 units completed based on this level of activity year to date. The month to month data is projecting a decline of 3% or an increase of 4%, ore somewhere in the middle or 108,000 units to 116,000 units. The November to November data is indicating that we could see a range between a drop of 4% and an increase of 12% from last November's level of 91,900, or a range of 88,000 to 103,000 units. We are running 3% ahead of where we were after October of last year. The current year data is projecting a minimum of 88,000 units and a more likely level of 95,000 units. The month to month and November to November data is pointing to an overlap between 102,000 and 108,000, leaning toward the low side. We have surpassed the 2017 monthly data all but one month this year. Expect a number around 102,000 completions.
The New Construction data feeds into the New Home Sales data. Rising levels of Starts during the past few months have placed us on track to possibly meet or exceed last year's end of year data. Under Construction data may start dropping as the level of completions accelerate. All of this should mean more new home sales.
New Home sales have beaten their 2018 counterparts eight out of ten months this year. Normally New Home Sales peak during May, June or July. The July and September sales data, non-seasonally adjusted, have both exceeded the June 2019 sales level.New Home Sales tend to rise during November and December as home buyers attempt to close on their homes before the end of the year and home builders attempt to reduce inventory before the end of the year. We have sold 57.000 or more units a month, every month, since February.
New home sales should move higher month to month and November to November. The growth rates here are at least 4% each. Last year we had weak November sales so we could experience a jump of up to 24% from last November's 44,000 units. The month to month data indicates that 59,000 to 63,000 units are possible. The annual data indicates November to November growth that would produce 45,000 to 55,000 units. We have sold 585,000 units through the first ten months of the year, or 58,500 per month. We are trending with 1988 and 1999 when 43,000 and 47,000 units were sold during the month of November. Expect a number between 55,000 and 65,000 units sold. Do not be surprised if it is on either end of the range of expectations.
The Average Sales Price for New Home Sales has been bouncing up and down since November 2015. We set a November record during 2015 and dropped during 2016. We set a November record during 2017 and dropped back during 2018. Should we expect to rise during an "odd number year" November? Are home builders attempting to build lower price homes to offset the missing lower priced existing home sales inventory? The Consumer Price Index (CPI) data has consistently had Shelter costs rising by 3% annually all year long. We could see a spike of over 3% from last November and see a drop from the October level. This is normal. A 3% increase would yield $367,000.The month to month data is indicating that we could expect an average sales price of 356,000 to 410,000 . The record for November is $388,500. The November to November change is expected between $348,000 and $385,000. Normally when the month to month data projects a lower value than the same month data, the month to month data "wins." Expect a number between $367,000 and $385,000, and do not be surprised by a new November Record over $388,500.
New Home Sales are contingent upon Inventory - which is anticipated to remain flat or rise. We normally see new home inventory, and especially existing home inventory, drop during the waning months of the year. The month to month data indicates that we could see inventory spike 5% to 15% % month to month to 338,000 units to 370,000 units. We have not been above 350,000 units since February of 2008. The November to November data indicates that we could expect 330,000 to 340,000 units. Expect inventory to rise as builders try to close out this year on a bang and as they prepare to go off to the races next year. The number to expect is 330,000 to 340,000 or roughly 335,000 units.
New Home Sales spur other economic activity. New home sales generate construction jobs, Home and Garden Equipment Sales, and sales in electronics and appliances and Furniture and home furnishings. This activity should spur more job creation. Most new home buyers are existing home sellers. This should boost inventory and sales in the existing home market. This data will be released next week.
Existing Home Sales have been higher than the same month data last year three of the past four months. June Existing Home Sales were disappointing. Existing Home Sales could rise November to November while dropping month to month. We had been experiencing good November to November growth except during 2018. The month to month data is pointing towards 370,000 to 435,000 units sold. The same month data is pointing towards 393,000 to 430,000. Last November we had 406,000 units sold. Current Year sales are at 4.507 million, or roughly 450,000 units a month. We can usually expect a drop of 50,000 units between October and November. A drop of 50,000 units places us at 413,000 units. One last thought on units sold: We sold 418,000 units during 2016, 425,000 units during November 2017, and 406,000 units during last November. The overlap is between 393,000 and 430,000 units, or 411,000 units. Expect a number between 410,000 and 425,000 units sold.
Expect a new November Average Sales Price Record. The Average sales Price normally is unchanged or 1% higher month to month, and normally rises 3% to 8% November to November. The month to month data indicates that we could expect an average sales price between $308,000 to $310,000. The same month data is pointing towards $304,000 to $313,000. Expect a number around $304,000 and $309,000.
Existing Home Inventory may set a record for the lowest level during November since 1999. Inventory tends to peak during July or August and decline through December. This column has been sounding an alarm regarding inventory since December of 2015. Inventory is expected to fall from the level record last month and last November. The lowest this level has been during November is just over 1.67 million during November 2017. Expect an inventory level under 1.700 million. Do not be surprised if the value drops to 1.65 million or even 1.625 million. If we have a spike in sales over 425,000 then the inventory level could drop considerably.
The Existing home sales data is only being held back by a lack of inventory. Mortgage rates are new historic lows. Dropping rates tend to slow sales and rising rates tend to motivate buyers to buy. It seems counter-intuitive. People are trying to save a little bit of money each month. The better investment, in my opinion, would be to lock in to a good rate and pay an additional 1/12th mortgage payment each month. You could save 19 years 11 years of payments by making 19 additional full payments
Why are new home sales and existing home sales off their peaks? One of the reasons that we have had weak new home sales during the past decade is that we have not had the units under construction to move to completions and sales. A second reason why we have not seen as much new home activity is that most new home buyers are existing home sellers. Existing Home Inventory there has been declining, year over year, since 2015. A third reason may be that the media is bemoaning rising average sales prices instead of saying "If you bought at or before the peak of the real estate market during 2005 and 2006 then you can probably sell your home and make a "tidy" profit. All real estate is local. Sales prices are dependent upon location, condition, and motivation. Sales depend on age, style, and amenities. Sales are contingent upon State, County, School District, and neighborhood. Consult a Realtor to find out what is happening in your market.
Why write this article? It is called managed expectations. If people expect sales to improve even though they tend to drop during this time of the year then they, and the stock markets, will be disappointed. If, on the other hand, sales improve year over year they should be happy. The annualized number looks forward to where we may be next November. There will be ups and downs between now and then. The annualized data for November 2018 might have been revised higher than their advance values for Starts, Under Construction, Completions, and Sales. Watch the revisions. New home sales have been revised higher from their advance values making the current month data look like a drop, even though they rose month to month and year to year based on the current month data.
Will the mainstream media do their research before these reports are released. We could have our best November data for all categories since November 2006 or November 2007. Starts are "starting" to recover from their "starts recession" and may surpass their 2018 level during the next two months. This would be the best year since 2007. Completions are on track for their best year since 2007. Under Construction data can say the same thing. Existing Home Sales are at 4.5 million units. We were at 4.965 Million last November and slightly over 5 million during November of 2016 and November 2017. WE haven't had a 440,000 November since 2006. It is possible, not probable, that this could happen this November. Expect November to November improvement to be reported as annualized declines and month to month weakness. You will smile, knowing the difference.
It's the Economy.
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