New Single-Family Home Sales Increased 3.7% in December

 

Implications:  New home sales finished 2018 on a healthy note, signaling optimism after what was a rocky year.  After a steady downward trend since March and an all-around disappointing report in October, new home sales have since rebounded moderately, posting gains in both November and December.  This burst of life at the end of the year dragged up the annual average pace of sales, with 2018 as a whole posting the best sales since 2007 and keeping the upward trend in housing activity intact.  It is important to note that November's reading was significantly revised down in today's report, from a 657,000 annual rate to a more modest 599,000.  The initial report on November arrived in late January after the partial shutdown ended, and provides further proof that data from the Census Bureau since the shutdown have suffered from measurement issues, as we've pointed out for recent releases on retail sales, durable goods, and housing starts.   That said, the increase in sales in November/December has helped reverse the recent upward trend in the months' supply of homes, which fell to 6.6 months in December after peaking at 7.2 in October (the highest reading since the housing sector hit rock bottom in 2011).  Remember, new home sales are volatile, and it's too early to tell if this truly marks a reversal in the direction of sales.  However, we continue to think that the fundamentals for the housing market remain solid.  First, relative to population, the number of new home sales remains well below where it should be according to history.  Using the ratio of sales to the US population from 1995 for example - well before the beginning of the housing bubble - shows new home sales should be at a pace of around 820,000 units annualized.  So even a partial climb back to demographic averages bodes well for sales over the coming years.  Second, the labor market continues to strengthen, and rising wages should underpin demand.  This is especially true now that both median and average sales prices for new homes are falling on a year-over-year basis.  Finally, mortgage rates peaked in November and have since retreated, boosting affordability.  Bottom line, we expect sales in 2019 to outpace 2018 and continue the upward trend.

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Posted on Tuesday, March 5, 2019 @ 12:02 PM

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.