New home sales up 32.1% year over year
The only economic sector that has exploded my estimates this year has been the new home sales market. I predicted maximum growth of 4.7% year-to-date, but that was before COVID-19, which temporarily crushed bond yields and mortgage rates.
This sector is very sensitive to returns in both positive and negative directions. When mortgage rates reached 4.75% -5% in 2018, demand fell and new housing inventories increased. This significantly slowed the rate of construction growth in 2019. We had to eliminate the excess housing supply created with these higher rates to keep housing starts roughly stable for 2019. But it is not. what happened this year when mortgage rates fell below 3%.
Today, new home sales are up 32.1% year-over-year and 16.9% year-to-date. Details of the Census Bureau / HUD report released today:
- Sales of new single-family homes in September 2020 were at a seasonally adjusted annual rate of 959,000. This rate is 3.5% lower than the revised August rate of 994,000, but 32.1% higher than the estimate of 726,000 as of September 2019.
- The median selling price of new homes sold in September 2020 was $ 326,800. The average sale price was $ 405,400.
- The seasonally adjusted estimate of new homes for sale at the end of September was 284,000. This represents a 3.6 month supply at the current selling rate.
When tracking data on new home sales, it is important to note whether the revisions confirm the trend. Data in this sector can show crazy month-to-month swings which are usually corrected to return to the trendline – so don’t overly rely on big negative or positive draws.
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If you follow me on Twitter, you know I urged caution with the recent parabolic movement in new home sales data. That said, even with the negative revisions and the missed sales report, this data line still feels too hot to me. So expect some moderation, but the story is legitimate: the new home sales industry has been at its best for many years.
The revisions for the previous two months were higher than expected, so this report exceeds my expectations. The last three months of sales have been amazing to watch. As a 2020 housing V-shaped salvage man who has been pushing a 2020-2024 year housing theme for many years, this year’s data is much stronger than I could have ever been able to. ‘to imagine.
In my opinion, the monthly supply chart for new home sales is the most important housing chart to follow. Typically, you don’t want the monthly supply to exceed 6.5 months. When this happens, housing construction stops. This is what happened in 2018 and this year in April at 6.8 months. Today, however, the inventory looks excellent, standing at 3.6 months.
Anytime inventory drops below 4.3 months, that’s a good thing in my opinion, as that’s where the supply should be for the new home sales industry after 1996. I like it. use housing data after 1996 for comparison, as this was the period when mortgage rates fell significantly and changed the landscape of monthly supply data. When we get monthly supply data from 4.4 to 6.4 months, it indicates that demand is not booming but good enough that housing starts increase single-family home construction. And that’s what we love to see because the new home sales market drives home construction.