Monday, 22 of April of 2019

Economics. Explained.  

New Home Sales

March 29, 2019

New home sales rose 4.9% in February to an annual rate of 667 thousand after having jumped 8.2% in January.  As a result, the 3-month average pace of new home sales which had been 584 thousand in December is now 630 thousand in February.  That presents an entirely different picture of the market for home sales.  Over the past year new home salves have risen 0.6%.   Thus, the housing sector is on the mend.

The National Association of Realtors publishes a series on housing affordability for existing homes which stood at about 155.0 in January.   This means that consumers have 55.0% more income than is necessary to purchase a median priced existing home.   It is important to remember that consumer income continues to climb.  Jobs are being created at a pace of about 190 thousand per month and hourly earnings are accelerating.  Those two factors boost income.  At the same time home prices are now declining and mortgage rates have fallen dramatically.  Thus, consumer paychecks are getting fatter and they can more easily afford a new home today that they were just a couple of months ago.  We believe strongly that housing is affordable and sales will continue to rise in the months ahead.

New home prices rose 3.8% in January to $315,500 after having fallen 5.9% in January.   Because this is an inherently volatile series we tend to focus on a 3-month moving average of prices (shown below) which is $314,000.  During the course of this past year prices have fallen 5.8%.  Lower prices will provide considerable stimulus to the pace of home sales in the months ahead.

At the same time mortgage rates have fallen from almost 5.0% to 4.0%.  That, too, should help sales rebound.

Having said all that, builders  are having a hard time finding an adequate supply of both skilled and unskilled workers.  Construction employment is rising by about 20 thousand per month.  Builders would like to step up the pace of construction, but it is difficult for them to do so given the scarcity of workers.

Between lower prices and lower mortgage rates, we believe new home sales should climb in the months ahead.  Thus, we believe the housing sector will continue to do well in 2019.  We expect the sales pace to rise 15.0% this year to 675 thousand.

Stephen Slifer

NumberNomics

Charleston, SC


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