Case in point: today we have 69,000 The new homes are completed and ready to sell, as shown below. Builders have managed their backlog well to ensure that this data line doesn’t explode on them more like we saw in 2008. The average number for sale will be around 80,000 homes, so we are returning to normalcy.
But the bigger story here is that builders’ biggest competition isn’t other builders – it’s the number of homes currently on the market. Existing homes are cheaper and also have a geographical advantage as they are present all over the map. In 2007, we had even more 4 million Total active listings, which was too much of a supply for builders to compete effectively. Today, the total number of active listings as per NAR is 1.080 million, And this number is decreasing year by year.
NAR total active listing data going back to 1982,
This explains why builders and new homes are outperforming the current home sales market, which correlates to higher mortgage rates and fewer active listings. Some people prefer something other than current active current inventory. That means new homes — with all the bells and whistles — may drive some buyers away from the existing home sales market, especially if they pay higher mortgage rates.
Now on to the report.
From Census,
new home sales, Sales of new single-family homes in May 2023 hit a seasonally-adjusted annual rate of 763,000, according to estimates released today jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is up 12.2 percent (±12.8 percent)* from the revised April rate of 680,000 and up 20.0 percent (±15.5 percent) from the May 2022 estimate of 636,000.
As we can see in the chart below, new home sales are not growing as fast as we saw at the 2005 peak, but sales growth is trending back from the lows we saw when rates were raised. saw. 5% In 2018. New home sales can fluctuate wildly monthly, so if we see some negative revisions in this report, just remember: It’s the trend that counts, and it’s gotten a lot better here.
Also, in the chart below, we can all agree that this is not Housing 2005 or Housing 2008 with new home sales piling up.
For sales inventory and months’ supply: The seasonally adjusted estimate of new homes for sale at the end of May was 428,000. This represents 6.7 months’ supply at the current selling rate.
As home sales are improving, builders are reducing their monthly supply, which is good for the economy. I have a straight model of when home builders will start issuing new permits with some exemptions. My rule of thumb to estimate builder behavior is based on three month supply average. This has nothing to do with the current home sales market – this monthly supply data only applies to the new home sales market and current levels 6.7 months.
As new home sales continue to rise, housing permits will follow once this data line improves. The model below has been my bread and butter for years:
- when supplies last 4.3 months And underneath, it’s an excellent market for builders.
- when supplies last 4.4-6.4 month, It is a good market for builders. As long as sales of new homes are increasing, they will keep getting built.
- when supplies last 6.5 months And above, the builders will withdraw from the construction work
As the chart below shows, significant correction has been observed in the current data. Furthermore, the only bubble crash this year has been in cancellation rates, not current home sale prices.
Also, it is important to break down the monthly supply data into different supply categories.
- Homes completed and ready for sale in approximately 1.1 months from supply 69,000 houses
- 4.1 months of supply are homes that are still under construction 259,000 houses
- 1.6 months’ supply to households that have not yet started, approx 100,000 houses
It is a solid report today as builders are shifting products and doing deals to attract buyers. I like this.
Housing has always been used as an indicator of the economy. As the builder confidence data rose, many pessimists ignored it because they assumed it was a dead-heck boom. Now that we’re almost closer to July 4th, 2023, here’s a warning. I ask my bearish friends who use housing as a leading indicator going into recession and what they believe the data is telling them now. So far, I haven’t heard a reply.
home builder confidence index
The builder confidence index is gold because builders are looking to make money, while some indices may have a political or ideological bent. I keep an eye on builders’ confidence and 10 year yield as both these are essential for housing. The report is a plus for the economy because if sales continue to remain high and mortgage rates may fall, construction worker employment risks will be reduced.
The purpose of this article is to show how much progress we have made in this area and why this is happening. Today’s report is a positive story for the US, expect this trend to continue as the best way to deal with inflation is always supply destruction, not demand destruction. A reduction in demand is a short-term solution, but supply needs to increase over time to beat inflation.
