New Single-Family Home Sales Declined 7.8% in January

 

Implications:  New home sales disappointed in January, coming in below even the most pessimistic forecast by any economics group to start 2018 off on a weak note.  Sales of new homes fell 7.8% in January, and are now down 1.0% from a year ago.  However, don't read too deeply into January's weak headline number.   Last year posted the highest annual sales total in a decade, a trend we expect to continue.  The biggest drag on today's number came from the South, as sales continued their return to trend after Hurricanes Harvey and Irma caused many people in that region to buy new homes to replace those destroyed in the aftermath, temporarily driving up activity.  Going forward it's important to remember that new home sales are volatile from month to month, but prospects remain good for further growth over the next few years. Sales of new homes were typically about 15% of all home sales prior to the end of the housing bubble in the previous decade.  They fell to about 6.5% of sales at the bottom of the housing bust and now have recovered to about 10%.  And if there's plenty of room for growth in new home sales, that means plenty of room for home building to grow as well.  At first glance, inventories sitting at a post-crisis high and a corresponding rise in the months' supply to its highest level since 2014 would seem to refute this. However, completed units are now at their lowest portion of overall inventories since 2006, which means builders still have plenty of room to expand.  With jobs continuing to grow at a healthy pace, wages accelerating, and a tax cut taking effect, we maintain our optimism about home building in the years ahead.  Although the new tax law trims back the mortgage interest deduction for some high-end homes, the value of the mortgage interest deduction was affected more broadly by the marginal tax rate reductions in the 1980s, during which housing did well.  Yes, the new tax law also trims back state and local tax deductions, including the property tax, but we think that's going to affect where people live, not overall home building nationwide.  The US economy is looking up and home sales will rebound in the near future.

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Posted on Monday, February 26, 2018 @ 11:45 AM

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.