Thursday, August 24, 2017

Where Are the New Homes?

There just aren’t enough home being built to satisfy surging demand.  The drop in new-home sales total for July to 571,000 units is misleading; mainly because May and June totals were revised upward. That’s because the Census Bureau estimate comes from a very small survey sample with plus or minus 11 percent possible deviation, hence the sometimes large revisions. For instance, this is 9.4 percent (±12.9 percent) below the revised June rate of 630,000 and is 8.9 percent (±15.4 percent) below the July 2016 estimate of 627,000.

And the available supply of new homes for sale rose sharply, up 4,000 to 276,000 new homes on the market. Relative to sales, supply moved from 5.2 months to 5.8 months, which is nearly at the 6-month mark, widely considered to be balanced for new homes, says Econoday.
So with more new homes coming on line, sales could jump again.

This is while existing-home sales ran at a seasonally adjusted annual rate of 5.44 million, the National Association of Realtors said today. That was down 1.3 percent from a downwardly-revised June pace but 2.1 percent higher than a year ago. That’s because there aren’t enough home for sale, folks, with available supply down to 4.2 month. It was the lowest since last August.

“Homes are selling fast,” NAR Chief Economist Lawrence Yun said. In July, that strong demand meant listings went into contract in under 30 days. It also pushed prices higher. The median sales price in July was $258,300, a 6.2 percent increase compared to a year ago.

All will depend on more homes being built, and housing starts are trending higher. Although nationwide housing starts fell 4.8 percent in July to a seasonally adjusted annual rate of 1.16 million units, according to data from the U.S. Department of Housing and Urban Development and the Commerce Department, year-to-date, single-family starts are 8.6 percent above their level over the same period last year.

Homebuilder’s optimism is also holding up. Builder confidence in the market for newly-built single-family homes rose four points in August to a level of 68 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), said the NAHB.
 “The fact that builder confidence has returned to the healthy levels we saw this spring is consistent with our forecast for a gradual strengthening in the housing market,” said NAHB Chief Economist Robert Dietz. “GDP growth improved in the second quarter, which helped sustain housing demand. However, builders continue to face supply-side challenges, such as lot and labor shortages and rising building material costs.”
Graph: Econoday

The number of housing permits for future construction is the main factor determining future new-home inventories. And housing permits have been a thorn in the economy's side all year, bouncing up occasionally but diving more times than not, reports Econoday. Permits were a negative in the week, falling to a 1.223 million annualized rate for a 4.1 percent monthly decline.

Permits are a leading indicator for construction and the results are pointing to further flattening for residential spending. Yet there are more pluses than minuses in housing, evident in the yearly rate for permits, which, is up 4.1 percent, as much as July was down.

So, the overall housing market remains strong. And guess what, interest rates plunged again, so that the 30-year conforming fixed rate is again at 3.50 percent for a 1 point origination fee. With rates this low, and the Fed now saying it may hold off on another rate hike, we could see these rates hold for the rest of this year.

Where are the new homes? Regionally, new home sales increased 6.2 percent in the Midwest. Sales fell 4.1 percent in the South, 21.3 percent in the West and 23.8 percent in the Northeast.  The number of permits issued rose 19.2 percent in the Northeast, fell 1.4 percent in the South, 7.9 percent in the West, and 17.4 percent in the Midwest.

Harlan Green © 2017

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