Reclaiming Common Sense

Last week we received the new home construction data for October and the existing home sales data for October. The forecast article "October Real Estate Forecast: Banging Ahead" projected good things for the new construction data and "not bad" things for the existing home sales data. The new construction data was not well received by the mainstream media because it came in slightly lower than expectations. The current year starts data, and the current year completions data, are ahead of where we were during October of 2017, which is better than where we were during October of 2016, 2015, all the way back to October of 2009 for Starts and October of 2008 for Completions. This was covered in "October New Construction Data: Goldilocks." The data was neither too hot, nor too cold. The data for existing home sales received another lukewarm reception this month. Existing home sales have been held back by declining inventory since December of 2015. "October Existing Home Sales: Solid" detailed how we have more inventory this October than last October, a new record October Average Sales Price was set, and how units sold are still better than where we were during October 2016. The October forecast article projected that we would see:

  • Inventory grow to between 335,000 units and 343,000 units
  • Sales could grow or slow. The month to month growth indicated 40,000 to 44, 000 units sold during October. The October to October growth projected 52,000 to 57,000 units sold. It was thought that we could expect sales to by between 52,000 and 56,000 units
  • The average sales price should have come in at a new record between $397,000 and $405,000, with the caveat that new records are difficult to project, especially as psychological berries to a $400,000 threshold enter the picture.

The "Great Recession" was started with a housing recession, followed by a jobs recession, followed by a retail recession. We pulled out of the retail recession first, followed by the Retail Renaissance. We need more inventory to generate more sales. Traditionally we have between 300,000 and 400,000 units for sale. How did we do this month?

Inventory Grew to 341,000 Units. This was on the high side of what was expected. The range was 334,000 to 344,000. This is still within the "healthy" range of 300,000 to 400,000 units. If we do not have the inventory then we can't make the sales. If we have too much inventory then starts and completions may slow.

Current Month sales dropped below the levels seen during October 2016 and October 2017. This 42,000 level is still better than the October sales levels for October 2008 through October 2015. This is still low by historic measures. We have seen some of this over-performing and under-performing month to month this year.

Current Year sales are still ahead of where we were last year. Last year we had 519,000 units sold through October. That value for 2016 was 482,000. We started quick out of the gate this year. We could end around 610,000 to 620,000 units sold, following the trend lines of 2017(614,000) and 1983 (622,000 units sold.) It is possible, not probable, that because we are 14,000 units ahead of last year that we could end in the 622,000 to 628,000 range by the end of the year.

The Rolling Year sales dropped to 628,000 units. This is "entirely" based on the situation that we sold 7,000 fewer units this October than we sold last October. This means that we could see another surge if there is a monthly surge during November or December as people try to move into their new homes before New Year's Eve.

The situation where the rolling year sales is slightly ahead of the current year data may reveal a slight slowing in the new home sales market. We have seen more existing home inventory coming onto the market. New home sales sometimes compete with existing home sales. We have seen some "backward" steps during the recent upward rise since 2011. There has been some discussion that the dip in sales is interest rate related. Rising interest rates can spur buyers to purchase prior to higher rate spikes. The converse is true in that falling rates often cause people to wait for a better deal on interest rates. Higher rates can reduce the buying power of the buyers or cause them to place a larger down-payment on the home, either in total down-payment or buy buying lower rates with points.

This report was better than has been reported and disappointing at the same time. The dip in units sold from last October was projected, it was not anticipated. Were some of these new home sales impacted by wildfires, hurricanes, or unseasonable weather settling in before expected? All real estate is local. Contact a Realtor or builder representative in you area to find out the specifics for your market. Prices vary by state, county, municipality, school district, neighborhood, size, and style of house.

It's the economy.