U.S. Economy

November New Construction: Not too hot, Not too cold

The New Home Construction data gives an indication to future economic Growth. The new construction data influences New Construction Jobs, Retail Sales, Retail Jobs, Professional Services jobs, and Gross Domestic Product possibilities. New Construction is reflected in the the Gross Private Domestic Investment component of GDP.

Contrary to what you may have heard elsewhere, we are on pace for our best new construction year since 2008, including last year. The talk you heard last month was that new construction was slowing was based on seasonally adjusted data. The seasonal factors used to convert the recorded non-seasonally adjusted (NSA) data to the reported seasonally adjusted (SA) data change by category, month, and year. The economy, and new construction specifically, is growing. This column examines month to month growth, same month growth, current year growth, and trialing year growth. If current year growth exceeds trailing year growth then the economy is expanding.

What was expected? This column produced a November Real Estate forecast article over the past weekend.  New Home Starts should have improved from last November’s 69,100 level. The consensus from the four measures is around 73,000 units up to 75,000 units. Last year we had 95,000 completions. We have seen a trend of 4% growth this year. This means that we should have seen 99,000 completions. Do not be surprised with 95,000 or 105,000. Expect a number around 99,000. The October to November changes indicated that we should have recorded between 1.154 million and 1.166 million units under construction recorded this month.

New Home Starts Disappointed, yet still ahead of 2017 in total starts.  The month to month data indicated the possibility of starts in the 61,000 to 69,000 range. The other data was pointing higher into the mid-70s. New Home Starts for single-family homes dropped to 60,300 from October’s revised 74,900 and September’s revised 75,000. The Current Year data stands at 849,000 units, up from last November when it was 793,800 and up from November 2016 when it was 781,500 units.

New Home Completions Disappointed and this, too, is ahead of where we were during 2017. The completions data came in at 91,800 for total units completed, including single family, 2 – 4 family units, and 5 or more units. It was lower than what was recorded during 2016 and 2017 for the month of November. That said, this year we have had 1.039 million completions compared to 956,000 completions during November 2017 and 872,700 completions during November 2016.

Units under Construction edged higher to 1.1566 million units. The growth rate is slowing. This is all relative. This column had expressed some concern over the rapid rise in units under construction during 2014 and 2015. The thing is that we need inventory to sell, and therefore units under construction, in order to generate new home sales. The inventory level has been over 300,000 units nationwide for the past few months. This is the “historic norm” of between 300,000 and 400,000 units.

What does this mean for next week’s new home sales data? We are nowhere near overheating, nor are we near cooling. This was a Goldilocks report, believe it or not. We may have been overheating for new construction earlier this year. The data may be cooling to a Goldilock’s growth rate. New home sales prices have not spiked.  Units sold are ahead of where we have been since 2008. Will we finish the year over 600,000 units? we sold 501,000 during 2016. We sold 561,000 units during 2017. So far we are at 533,000 units. We sold 40,000 units November of 2016, and 39,000 that December. Last year the data was 50,000 and 45,000. There are some who feel that we must hit 640,000 units annualized. They forget that the annualized value is based on the seasonally adjusted current month sales and not any current year trend. The units sold have been projected between the mid-40s and the mid-50s. Expect others to say a number under 50,000 is a “disappointment.”

The  data was good, not great. We may have “gotten ahead of ourselves” earlier during this year. We could be saving up for a sprint to the finish. We could see completions spike next month. Take a deep breath. The new construction market was 30 years in the making. It only took 4 years to tank. It may take another six to eight years to reach the levels we saw during 2006 and 2006. The Current Year data is comparable to where we were during November 1982 and November 1991. Fourteen years from 2010 is 2024.

It’s the economy.

The Month to month charts can be found here.

The Current Year data can be found here.

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