In this week’s screeching headlines: “Sales of New Homes Reach Eight-Year High, Point to Stronger Economy.”
April did have a big month, maybe even a trend-changer, but this is an election year — a crazy one — and everything needs a second look.
Why is it so hard to count housing?
Housing is arguably the nation’s largest industry, yet suffers with some of the worst aggregate data. Sales of new homes released each month are the joint estimate produced by the U.S. Census Bureau and the Department of Housing and Urban Development (if you want anything done properly, make one person or entity responsible).
Sales of new homes are based on contracts written, not closed sales. The rate of cancellation is high and stupendously variable. And not subsequently corrected. It takes many months to complete a home, but there will be no October revision of April’s report.
The change in sales reported is from the prior month, then annualized. This newest report in actual numbers (seasonally adjusted, which probably does help) was 619,000 homes sold in April versus 531,000 in March — a gain of 88,000, but annualized, so divide by 12 to get the month-to-month increase.
That’s 7,333 homes in a nation of 323,000,000 people.
What to pay attention to
The figure to look for in each of these reports: the year-over-year.
The big news in this report really is big, almost 24 percent ahead of 2015. However, odd on its face: construction of multi-family homes (apartments and condos) is slowing almost as fast.
Is this-year-over-year surge alarming to the Fed, or to anyone else as a sign of overheating? No.
At 600,000 units annualized, that’s only 75 percent of the numbers common in the 1970s and 1980s, when we housed the baby boomers — and also an America with only two-thirds the population of today.
Second, we’re playing catch-up. The overbuild of the bubble was sold off by five years ago, even in lousy markets. Today, every economically vibrant metro area has a first-class shortage of housing.
The marker for housing bubbles: a dramatic increase in mortgage balances. No money, no bubble.
After pent-up demand, the best reason for a spike in new homes sales: pent-up supply. A builder can “sell” a home not yet built, but the builder can’t even do that until there is a map showing roads and lot layout.
It takes time — years — to get one of those maps. The busier the metro area, often the more difficult the planning department. Subdividing land often requires a several-year effort to zone or re-zone, a long argument about the mix of housing, provision for affordable housing, fees for permits and taps, and “impact” fees — a shakedown for the local general fund.
Stick with simplicity: We have a pop in sales of new homes primarily because builders have something to sell. Maps to stick pins in.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
