If We Get Good Real Estate News Will It Be Reported?
Starts, Completion, and Sales Are Improving - Should Continue
Last month we had seriously good new construction data, new home sales data, and existing home sales data. It wasn't bad news so it wasn't reported in most places.
Instead the media focused on declining sales, or starts on a seasonally adjusted annualized basis. Hint: Things slow down when it gets colder.
Annual Rate - Seasonally Adjusted data is misleading the media. You can observe from the month by month Starts data that Starts normally peak during April, May, or June. The seasonally adjusted annual rate of sales normally peaks during April, may or June. Go Figure. Completions peak normally during June, July, August. New Home Sales peak during March or April. Existing home sales normally peak during June and sometimes July. Guess what? The seasonally adjusted (SA) annual rate of starts, completions, and sales are past their normal peaks so their values will be reported as falling this month. Normal will be touted as poor. What is really happenings with the Non-seasonally adjusted (NSA)data, also known as reality?
Starts were sluggish earlier this year - picking up the pace, now. We appear to have "hit a wall" with regard to October Starts. We have had roughly 75,000 NSA Starts during October the past tree years. We had 75,400 during 2016, we had 75,700 Starts during October 2017, and 74,900 NSA Starts last October. We used to have 100,000 or more Starts during the month of October from 1992 through 2006. Rolling year growth had gone negative. The rolling year grow this the change in Starts during the past 12 months from the growth compared to the same month last year. Current year growth has been slowing compared to the same month last year. The Same month data has been exceeding the same month last year during the past three months. This is fairly normal, as can be seen in the Rolling Year (RY,) Current Year (CY,) Same Month (CM,) growth graph.
Expectations are for the month to month data to change by either plus or minus 4%. Same month growth is expected to grow by 3% to 8%. This means that we should see a minimum of 77,000 starts and the potential for 84,000 starts. We should see well above 75,000 starts and could anticipate 80,0000 single family starts.
Units Under Construction are approaching all-time highs. We need Starts to spur units under construction, units under construction to lead to completions, and completions to lead to sales. The Under Construction (UC) Histogram shows that we nearly saw a total collapse of the Under Construction market during the Great Recession. There was a spike of activity during 2004 and 2005. We saw similar spikes during 1977 and 1983.
Expectations are for Units Under Construction to grow month to month and October to October. This month the Under Construction data is expected to edge higher from last month's 1.178M units and last year's 1.151M units to between 1.179M and 1.192M units. This will appear as a relatively significant spike.
Completions are expected to continue their march upward from last year's levels. We saw 106,900 October completions during 2017 and 100,200 October completions during 2018. Completions have exceeded their 2018 counterparts six of the past nine months. The RY CY CM data for Completions looks very similar to the New Home Starts Data. Last year was the "Year of Starts." This year has been the "Year of Completions. We could see the CY and RY curves bend upward during the next few months.
Expectations are for completions are mixed - They could either improve or decrease month to month and October to October. The month to month data could grow or drop by roughly 5%. The October to October could grow or decline by roughly 4%. The range of expectations are almost identical with the month to month data pointing towards 92,000 to 102,000 completions and the October to October data pointing towards between 96,000 and 104,000 units completed. If we hit 99,000 units it would be okay, not great. A number of 104,000 units is also well within possibility. Expect a number around 102,000 units. Expect this drop to be reported month to month as signs of a cooling market. It is in fact a sign of air temperatures cooling with the seasons and completions trending cooler with the cooling air temperatures.
The New Construction data will be released this Tuesday. Tomorrow morning we will receive data that is cooler than last month and possibly "warmer" than last October. People in the media will focus on the trend rather than the expectations. Will we see October and December spike in Starts, as we did during 2017? Will we see a drop in Completions during October followed by a spike in November, as we did during 2017? If the seasonally adjusted annualized starts and completions bump higher will that cause commentators to finally note that we are on-track for one of our best years since 2007? If completions and starts uptick, just not enough to move the seasonally adjusted annualized data higher will Trump Derangement Syndrome rear its ugly head and be touted as a sign of an Economy in decline rather than a decline that happens "every" year around this time?
Thursday we will receive the Existing Home Sales data. We "normally" sell roughly 450,000 units during October. We also "normally" have 2 million units for sale during the course of most months of the year. Inventory started declining during 2015. Sales have attempted to keep pace with demand. Existing home sales, and especially new home sales, help spur Retail sales, especially Building Material and Garden Equipment (BMGE) sales and Furniture and Home Furnishing (FHF) sales. It is also clear that, as with the construction data, the sales data was held back earlier this year as a result of the Government Shutdown.
Inventory normally is expected to grow year to year and possibly decline month to month during October. These are mutually exclusive this year. We cannot both decline month to month and rise October to October. last year we had 1.848M units in inventory while last month we only had 1.827M units in inventory. Inventory was expected to decline significantly last month and remained relatively stable. We appear to have ht bottom during December of 2017. The "annualized inventory" is expected to decline. Inventory "peaked" during June this year, for single family homes, at 1.700 million. The seasonally adjusted annualized sales data peaked during August. September to October single family homes dropped by 30,000 units last October. Condominium inventory fell by 3,000 units last October. If we record similar drops in inventory this October we will fall below 1.800 million units. We may be fortunate if we see 1.808 million units in inventory. It is possible for a spike to over 1.850 million units if people placed their homes on the market over the Labor Day weekend in hopes for a quick sale, in an effort to take advantage of low inventory levels. Don't be surprised if there is an uptick or a downturn in inventory. We may see a level around 1.825 million units. Inventory could drop October to October and could be up month to month.
Units sold could increase or decline month to month and October to October. Inventory impacts sales. You cannot sell what is not for sale. We do have four months of inventory available for sale. we could see one third of the inventory sell this month, or roughly 450,000 units sold, just on absorption. Month to month data indicates that rough 425,000 to 475,000 units sold this month. October to October sales data indicates that we could see 432,000 to 472,000 units sold, or roughly 452,000 units sold. Right now we are trending between the 2015 year to date (YTD) and the 2018 YTD. Their sales levels were almost identical at 444,000 and 446,000 units respectively. We had 446,000 units sold last month and 452,000 units sold last October. In theory, we could increase month to month and decline year to year. All of the data points to 450,000 except....
Current year sales are expanding. We should go positive before the end of the year. Rolling year sales are also pulling higher month over month. We have seen some dramatic same month growth this year. Same month sales spiked by roughly 3.5% during July and over 7.0% during September. a 3% pop would place us at 458,000 units while a 7% pop would garner nearly 475,000 units. Heads would explode if we hit 475,000 units. Expect a 450,000 number and do not be surprised by a 460,000 number for units sold.
Supply and demand dictates rising prices. Demand does decline during the Fall, so month to month the average sales price is expected to decline up to 1%. It could be unchanged. It is not expected to rise month to month. We could see a spike of 3% to 9% in average sales price over the October 2018 level. The overlap between month to month and October to October expectations are in the range of $302,000 to $308,000 for the average, mean, sales price. Some in the media want to discuss the median sales price, the price where 50% of the sales take place over that price and 50% are under that price. That is not the mean or the average sales price. The Mean sales price is expected to be an October record, and records are inherently difficult to predict. Expect something between 299,999 and 304,999.
Month to month decline is seasonal and expected for existing home sales during October. People want to move during the end of May (Memorial Day Weekend, during the end of June and beginning or July (Fourth of July Week) or during the end of August and beginning of September (Labor Day Weekend.) They want to be in their new residence for Thanksgiving and Christmas. The real estate market, especially the existing home sales market, is transitioning to better market conditions for sellers. Declining conditions are usually fairly consistent. Improving conditions come in fits and starts.
New Home Sales are expected to grow October to October, and possibly month to month. New Home Sales data will be released next week. The number of October sales last year were lower than anticipated, making this year an easy year to see comparable sales spike. That said, normally new home sales peak during April or May, not April and June. Some of this could be that new home builders are building homes priced to substitute for missing existing home sales inventory. New home sales should drop month to month. They could rise month to month. This year the CM data has been very strong. Last year we had 43,000 units sold, down from the 49,000 units sold the prior October. Another 49,000 unit month could be seen as improvement from last year. The month to month data indicates 50,000 to 58,000 units could be sold. The October to October data is leaning between 46,000 and 53,000. The same month spikes mean that 53,000 to 58,000 is a distinct possibility.
We have nearly sold as many new homes through September as we sold through October last year. We are on-track with the units sold during 1995 when we sold 54,000 units. The prior year we had 57,000 October sales and the following year we had 56,000 October sales. We have not seen October sales that high since October of 2007. Conversely, October sales were always equal to or above 54,000 units from 1993 through 2007. Last month the current month data spiked 17% over September of 2018. August the spike was 21%. July the spike was 8% and June it was 18%. If we spike 8% then we hit 46,000 units. If we spike 18% then we are at 51,000 units. There is the possibility of a 23% spike which would yield a 53,000 level. Net net: Expect a Number with a 50,000 start.
Will we crack the $400,000 level during October? We have been hanging out around $394,900 the past two years during October. last month the average Sales Price (ASP) was just $363,000. Even if we saw a 6% pop this month that would only get us to $384,000. The annual growth has been over 3% for an extended period of time. This would yield an Average Sales Price of $405,000. This would be a 12% spike month to month. That would get people's attention. We did record 17%, 14% and 16% increases October to October during 2013, 2014, and 2017, respectively. A value of $384,000 is just as likely as a value of $394,000 or $404,000. We might be "surprised" with another $395,000 month.
Inventory has been growing year over year since the bottom of the Great Recession. It is difficult to sell what isn't available for sales. It is "impossible" to sell something that isn't for sale. Inventory should grow 1% to 3% this month and 3% to 17% from last October. The problem here is that sales have been taking larger chunks out of inventory than completions have been filling them. We need to have a 3% MTM growth to return us to last year's October level of inventory. We would need an 11% spike in month to month inventory to achieve a 7% increase October to October. The largest spike month to month during October is 5%, followed by 3%. Expect inventory to be recorded around 330,000 units, or roughly 3%.
We have had 49,000 to 68,000 new homes sold each month this year. The trend this year is for this year to outperform last year's current month sales by a wide margin. Average sales prices have been rising, in general, and should continue to rise, unless builders start building lower priced homes to take advantage of a lack of supply of existing homes for sale. Inventory should decline as builders try to clear inventory before the end of the year, and yet, they also want to build inventory to sell more units next Spring.
Builder Confidence is High. The builder sentiment report was released while this article was being written. Sentiment is confidence. Last month the Sentiment was recorded at 71%. This month it was 70%. Some in the media (CNBC, Bloomberg, Marketwatch) will proclaim that confidence is waning. last November the sentiment was 60%. A 10% spike is impressive. It is also the highest November sentiment level since November 2004 when it was also recorded at 70%.
Remember that all real estate is local. New home sales are dependent on community, school district, neighborhood, lot size, home size, upgrades, and other amenities. Existing home sales are based on more than location, location, location. Community, School district, neighborhood and amenities are also important to existing home sales. Condition and price are critical. Consult a local Realtor to find out what price ranges are hot, and which are not. If you have to sell your home to buy your next home then it is usually better to list your home first and "risk" two moves versus two mortgages. Consult your loan officer.
It's the Economy.
unity Copyright © Jack Dunn All rights reserved.