The February Real Estate Data could spike after a weaker than expected January. January activity may have been held back by the Government Shutdown
The December New Home Construction data and the December New Home Sales data allowed the end of the year data to be the best for both since 2007. January was a little sluggish, both for the January new home sales and new home construction, possibly due to the weather, possibly due to the Government Shutdown. The December Existing home sales data showed improving inventories even though 2018 was slower than 2017 for units sold. The January Existing Home Sales data showed weaker than projected sales and an improving inventory level. Did the “Government Shutdown” shutdown loan approvals and restrict the number of closed deals?
The Government Shutdown Delayed the Data, and possibly some sales.
The Government shutdown that happened during December of 2018 and
January 2019 delayed the release of a considerable amount of economic
data, including the new construction and new home sales data. We just
received the new construction and new home sales data for January within
the past two weeks. The January New Home Construction data was released
March 7th and the New Home Sales data was released March 15th. Loan
approvals were potentially slowed due to the government shutdown, in
addition to the data. Closings cannot happen without loan approvals, in
Some New Construction Starts may have been shifted from December and January to February.
New home starts have been rising during February since 2014. The 70,000
level used to be the “floor” for February prior to the recession. If we
should expect 62,000 during February, there is the possibility that we
could see some carryover into February and hit the 69,000 level. We
could see even more spillover into February and move up to the 75,000
Units under construction slowed their growth during January – May pick up the pace again.
We are approaching units under construction close to the pre-recession
level. We are above the 1 million units level and above the 1.1 million
units level. It is possible that we could fall between the 1.12 and
1.13 level of units under construction, leaning toward the 1.13 million
New Construction Completions have slowed recently – may show a spurt in advance of the Spring Market.
The month to month data is projecting very weak completions data. The
February to February data is projecting strong data. The delay is not
denial thinking is data. We could see data spike up into the mid-90,000
level or it could falter. Normally when the data does not overlap
month. to month and same month that means to “expect the worse.” It
seems certain that completions were slowed because of the government
shutdown. February was the first full month outside of the Government
Shutdown. The thinking is that we should see something in the same range
as last February’s completions level, or at least 88,600 units.
Net-Net this is like getting B’s and C’s when you have been getting D’s and F’s. We used to have expectations of February starts in the 75,000 to 85,000 range. We used to have completions data in the 95,000 to 115,000 units level during February. Only the under construction data is back to pre-recession levels. The missing elements in most articles in the mainstream media is home much new construction is being impacted by the wildfires out west and the tropical weather brought to the United States due to hurricanes and tropical storms. (Graphs and table are here.)
You need new home inventory to make new home sales.
The new home inventory level languished under 300,000 units from early
2009 through early 2018, We were approaching 600,000 units in inventory
during 2005 and 2006 while we had record levels of new construction
sales. Inventory is up more than 10% compared to where we were during
February 2018 when we were at 295,000 units. Inventory levels could drop
this month, based on normal month to month trends. The overlap is
between 329,000 and 336,000. Anything under 336,000 would be a drop in
inventory. There is the possibility that it could continue its climb and
head towards 342,000 units this month.
New Home Sales have been trending higher February to February.
The way that this forecast is created is to compare month to month
changes and same month changes. Where to the two calculations overlap is
where it is anticipated that we will see the data reported. There is no
overlap for new home sales this month. Last month’s stumble of 45,000
units sold could mean another stumble this month. Last year’s 54,000
February units means that we could see up to 59,000 units sold this
month. It has been postulated here that the government shutdown
shutdown the loan approval process. There was an article published elsewhere
during Mid-January that confirmed this suspicion. If the units sold
during December and January were “artificially depressed” by the
government shutdown, it is possible that the new home sales data, and
the existing home sales data, could be “artificially stimulated” this
month and future months. Do not be surprised if the new home sale data
drops a little from last February’s 54,000 level. Do not be surprised if
it surges to 59,000. Could we hit 69,000 units this month? Possibly.
Expect 59,0000 to 64,000.
The average sales price has been falling recently for the same month data.
Last month the average sales price fell from the January 2018 level
because fewer homes sold over $500,000 than January 2018, and more homes
sold between $200,000 and $299,999 than were sold during January 2018.
The data indicates that the average sales price could just as easily be
between $359,000 and $396,000 as it could be between $384,000 and
$388,000. Expect the average sales price to be below $373,000 and
between $359,000 and $369,000. Expect a average sales price of $364,900
as builder reach down to backfill the missing inventory in the existing
Stability in inventory and units and sales price is okay. (Graphs and Tables are here.)
Existing Home Inventory had been faltering from 2015 through most of 2018.
existing home sales data was lackluster last year as inventory
continued to be in a drought. The existing home data only stretches back
to 1999. January of 2017 we had out lowest “ever” inventory level.
January is normally the lowest inventory month of a year due to weather
and due to school and work schedules. Existing Homes could surprise to
the upside for the same reason that new home sales could surprise to the
upside: The Government shutdown has ended.
Existing Inventory has increased year over year, same month, since August.
The July Existing Home Inventory was identical to the July 2017
inventory level. Inventory tends to improve February through July. We
already have more inventory than we had during February 2018. The month
to month data indicate that we could pop up to 1.7 million units. The
overlap is between 1.638 million and 1.674 million units. Higher average
sales prices last year may have convinced more potential home sellers
to de-clutter and fix up their homes for sale this Spring, once the
Super Bowl was played. Expect a value around 1.65 million units.
Units sold could surprise to the upside. Will it be a surprise now that I have told you? The number of units sold during February has been stubbornly persistent in the 310,000 to 319,000 range the past three years. Prior to the housing recession those values were drifting higher from 344,000 to just over 400,000 units during 2005 and 2006. Once again, the data could be interpreted for units sales between the extremes, 285,000 to 335,000 or roughly 320,000 units, or between 305,000 and 319,000 units or around 312,000 units. Expect some of those sales delayed from December and January to spill into February. We could see our best February since February 2007. Do not be surprised by a number in the “320s and prepare for a number in the “three-teens.” (Graphs and tables are here.)
This column produced an article that said that
the Government Shutdown might not show up in the Gross Domestic Product
data. Gross Private Domestic Investments, including new construction,
was anticipated to be “set” for 2018 and that any January delay would be
absorbed during February and March. The Government Shutdown appears to
have impacted the real estate sector. Will be get a spurt of good news,
sustained good news, or something else. Will we end up better during
2019 than 2018. It will take a few more months to see the trends. Often
where we start determines where we finish. Fortunately, while we missed
the starting gun, this is a twelve lap race. There is plenty of time to
press for a strong finish.
It’s the Economy.