The New Home Construction data gives an indication to future economic point, including New Construction Jobs, Retail Sales, Retail Jobs, Professional Services jobs, and Gross Domestic Product possibilities through the new construction contribution to 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. The 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. Your interpretation of the data may depend if you are Goldilocks or Veruca Salt.
What was expected? This column produced a November Real Estate forecast article over the past weekend. Existing Home sales are contingent upon existing home inventory to be sold. Inventory has been on a same month decline since December 2015. It was thought that inventory would fall from the October level and improve from the November 2017, coming in around 1.74 million to 1.80 million units. It was thought that the average sales price would come in between $295,000 and $299,000. It was projected that the lower inventory level and the Fall/Winter cycle would create an environment where the units sold would be 426,000 units or lower. Remember that all of this data is non-seasonally adjusted, What is reported is the seasonally adjusted data. What is recorded is the non-seasonally adjusted data. What was recorded and what was reported in the November Existing Home Sales data.
Inventory did drop from October and Improve from November 2017. Inventory peaked, post-recession, during June 2015. We had same month declines through July 2018 when we had “no growth, no loss” as compared to July 2017. It is not possible to sell imaginary existing home inventory. The “national months Supply improved from last year’s 3.5 month to 3.9 months.
We set a November record for the monthly Average Sales Price. The average sales price came in right in the middle of the $295,000-$299,000 range at $297,700. last year the average sales price was $290,000 for single family homes. Condominium sales came in at $285,100 “unchanged” from last year’s $285,500. The combined average was up from $289,500 to $296,300.
Units Sold dipped to 406,000. Last month we had 446,000 units sold. Last November we had 425,000 units sold. The sales were slightly slower than November 2016 and November 2017. This November was better than November 2010 through November 2015. The current year data projected 404,000 units sold and the month to month changes indicated a range of 356,000 to 419,000. This was not a hot number or a cold number.
Who is your newsperson, Veruca Salt or Goldilocks. Veruca Salt was a character in “Willy Wonka and the Chocolate Factory.” She was a spoiled little girl who “wanted it all.” Goldilocks didn’t want a bed that was too hard or too soft, she didn’t want her food too hot or too cold. There are a number of Goldilocks economists and people in the media who look at the economic data as economic pornography – they will know good news when they see it. If the data misses the mark it is “disappointing.” If the numbers come in “hotter than expected” they express concern over overheating. They never really say what good data would be or what bad data would be, before the data is released. If the dollar is strong they forget what they said about President Trump explaining the benefits of a weak dollar. Rarely do they claim it is “just right.”
Verucas will say “the data was good, but…” The data was good BUT I wanted to see 450,000 units sold. The units sold was good BUT the average sales price is too high for most buyers. They will say with regard to this month’s GDP that “it’s 3.5% BUT I wanted to see GDP at 4%, never mind that third quarter last year it was 3% and the third quarter during 2016 was a paltry 1.9%. The Jobs Data was good BUT with full-employment we should be seeing better data, like we saw under former President Reagan. The economic data was great BUT late in the economic cycle we should be often see a surge in enthusiasm before a crash. We should be seeing the economy unleashed with the changes in regulations and taxes, we should be seeing even better data than we are seeing, BUT this is a sugar high and will only last so long.
The “rolling average sales price growth” is at 3.36%. It is a non-sensical It is a non-sensical number.because it is the average of the average. If you want to believe in this measure it shows that the average sales price is not spiking as some people who have you believe. The average sales price was up 2.7% from last year. Demand may accelerate before supply can be bolstered, placing upward pressure on the average sales price.
Buyers coming out of the darkness during 2019? A problem that we have had is that we have had buyers who may have had bankruptcies or foreclosures during the Great Recession. These situations prevented people from buying homes for 7 years after the “crisis” date. We started emerging from this “blackout” period during 2017. We also had “zero” growth in full-time jobs between July 2007 and January 2017. It takes at least two years of continuous full-time employment to qualify for a mortgage, in general. Guess what, we hit the two year mark for net new job creation starting February 2019.The housing market generally picks up after Super Bowl Sunday as people want to move the following Memorial Day, Fourth of July Weekend, or Labor Day Week.
Goldilocks would say that the housing market is “just right” while Veruca might say that see wants it all, and sales lower than 2016 and 2017 is not enough. Last year’s end of year units sold would be difficult to beat. The data indicates that we should beat the 2015 end of year data and challenge the 2016 end of year data. The past two years we have recorded higher December sales than November sales. Will this trend continue?
It’s the economy.
Categories: U.S. Economy