Reclaiming Common Sense

 August to August: Units Up, Average Sales Price Up, Inventory Up.


This column produced a August Real Estate forecast article earlier this month. It examined the trends in the non-seasonally adjusted (NSA) data for new home construction, new home sales, and existing home sales data and projected growth in new home starts, new home units under construction, new home completions, new home inventory, new home units sold, and the new home average sales price. It projected:

  • the units sold should have been between 49,000 and 54,000, with the possibility of hitting 60,000 units;
  • the average sales price would set an August record. It was said that we should expect a number of $394,900, and do not be surprised either by a value of $380,000 or $399,000.
  • the inventory should jump by at least 8.3% from August 2017's 284,000 units. to 308,000 units;

The release of the new construction report was lukewarm because the media is reporting on the seasonally adjusted data. What was recorded, the NSA data, is different from what was reported, the SA data.


We have sold as many, more more, units every month this year as last year. The annualized, SA, rate of sales is up from 588,000 to 629,000 units, August to August. This month we sold 50,000 NSA units compared to 45,000 units last August.  While this is on the low side of expectations, it is within the expectations published prior to the release of the report. The Current Month sales are up 11.1% from last August.


The Average Sales Price set a new record of $388,400. It is always a bit precarious projecting a record Average Sales Price (ASP) when protecting possibilities for new and existing homes. There is added price sensitivity as sales prices rise. There are thresholds at $25,000 levels, $50,000 levels and $100,000 levels. The $400,000 threshold is a "25, 50, and 100 triple witching price."  This was near the a $394,000 during October of 2017.


The Current Year sales are up 6.9% from last August. We have sold 449,000 units through August of 2018 compared to 420,000 through August of 2017. We are trending between the sales levels of 1983 and 1989, between 622,000 and 650,000. Last year we sold 614,000 units. If we sell just 6% more units this year than last year we will hit the 650,000 unit level.


The Rolling Year, or Trailing Year data, is up 7.89% from August 2017. We saw 589,000 units sold during the prior twelve month during August of 2018. This year, during the past 12 months, we have seen 643,000 units sold.  The situation where the current month sales are up more than the current year sales indicates an expanding sales pace. The current year growth being slightly slower than the rolling year rate indicates a slight slowing in sales. One month is not a trend.  Sales tend to taper a bit during the period of time between March and December, as is observable from the units sold histogram. We may see a maintenance of the 50,000 unit level or we may see a bump of 5,000 units to 55,000 units during one or more of the remaining four months of the calendar year.


Inventory surged from 313,000 units to 325,000 units. The inventory level for July was revised up to 313,000 units. If we had grown at 8% from that level we could have had 338,000 units. Upward revisions to the prior month's data slows the growth for the current month.  The forecast article commented that a "healthy" level of inventory may be between 350,000 units and 375,000 units.


The data is up across the board. If you examine the 13 month data table at the end of this article you will see that Starts are up, units under construction are up, completions are up, inventory is up, the median sales price is up, and the average sales price is up from last August. The sales curve is similar to the inventory curve. If completions continue to rise then inventory will rise. As inventory rises there is a higher likelihood of higher sales.


This was a good month for real estate data. The August new home construction data was recorded higher than lastAugust. existing home sales were recorded higherthan last August. New home sales, and existing home sales, spur retail sales in the furniture and furnishing sector, the home and garden sector, and even the automobile sector. Surging retail sales spur more hiring. Surging construction demand spur more hiring in natural resources and construction, and professional business services.  This was a stronger August new home sales report than we have seen during the past decade.


It's the economy.