New home sales are up. And down.
The Census Bureau has reported a Seasonally Adjusted Annual Rate (SAAR) of 563,000 sales in October 2016, a staggering 17.8% increase over the October 2015 SAAR. The numbers are down by 34,000 from September, but every year, economists point to the change of seasons, which always brings that sort of ebb and flow.
The data comes after predictions of slowed sales growth for the year; last year, trusted real estate blogger Bill McBride was on the pulse of economic trends that he felt could have hindered the obvious pattern of growth in the real estate market since the economy recovered from the recession in 2008:
Some key areas – like Houston – will be hit hard by the decline oil prices. And I think growth will slow for multi-family starts. Also, to achieve double digit growth for new home sales in 2016, the builders would have to offer more lower priced homes (the builders have focused on higher priced homes in recent years).
There has been a shift to offering more affordable new homes, but it takes time.
But McBride didn’t account for low mortgage rates and increased housing resource supply. The two together have pushed housing starts themselves to 1.3 million, which in itself is a 23.3% increase over October 2015.
We last saw recovering levels of supply at these rates in 1997 and 1987. It’s important to note that mortgage rates have recently begun to increase again – it’s difficult to predict exactly how that will affect steady growth.
Optimism with room to grow
Trulia Chief Economist Dr. Ralph McLaughlin claims home sales are at their best in 8 years and that they’re boosted to 85% of the 50-year “norm.” “New homes are helping satisfy homebuyers constrained by low resale inventory, but sales have room to grow,” he suggests, “In October, new home sales represented about 11.6% of all sales, which is less than half of the pre-recession average of 23.6%.” The SAAR has a long way to go before reestablishing stability closer to the highest rates in 2005.
And what about predictions for the future? McLaughlin has key insight into 2017:
“While it’s still uncertain how a Trump administration will affect homebuilding activity, over half of all new home sales are in the red-leaning South, where homebuyer and builders may be feeling a renewed sense of confidence about the year ahead. As such, both demand and supply is likely to benefit, at least in the short run, and we expect increases in new home sales in Southern red states.”
Maybe he’s onto something. After all, Home Depot stock has steadily increased for the last five years culminating in almost a solid 50-point increase. The more we all buy homes, the more we buy light fixtures, sofas, and contribute to our new neighborhoods.
Consensus: the trend is on the up, is stable, and is something to continue watching.