New home sales fell short of sales expectations, but builder stock prices are soaring. What gives? Before we get into the details of the report, there are two important things to remember. The rise in mortgage rates to his 8% in October affected the data line.I talked about this upon CNBC recently.
Also, new home sales are notorious for their tendency to have large positive and negative prints retouched. Negative revisions were made three times to coincide with the rise in mortgage interest rates to 8%. So, if you’re confused as to why construction stocks have been doing well lately, construction companies are still showing sales growth well into 2023, and interest rates are also falling now, with the Fed’s rate hike cycle Because it has ended.
from census: Newly built home sales: New single-family home sales in November 2023 were at a seasonally adjusted annual rate of 590,000 units, according to estimates jointly released today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.2 percent (±15.6 percent)* lower than the revised October figure of 672,000, but 1.4 percent (±19.8 percent)* lower than the November 2022 forecast of 582,000. exceeds.
The data was revised negative for three months due to rising mortgage rates. Let me be clear; federal reserve As the existing home sales market shows, there are far too many restrictions on housing, and sales levels are at record lows considering the labor force. With core PCE inflation currently running at a three- and six-month average of 2%, it is time for the Fed to: pro housing again.
Inventory for sale and several months’ worth of inventory: As of the end of November, the number of newly built homes sold (seasonally adjusted) was 451,000. This equates to his 9.2 months’ supply at current sales rates.
The number of housing starts has not increased rapidly, but this is mainly due to a slowdown in the construction of five units. However, as mortgage rates rose to 8%, monthly supply data increased as sales slowed. But builders are still able to sell homes by offering purchase prices, and as interest rates rise, so do prices. This is another wake-up call for the Fed. Let’s make a baby build!
My model for understanding builders is:
- At the time of supply 4.3 months Below, this is a great market for builders.
- At the time of supply 4.4 to 6.4 months, this is an OK market for builders. As long as sales of new homes are growing, more homes will be built.
- At the time of supply 6.5 months or morebuilders pause construction.
One thing I would like to do is break down the monthly supply data into subcategories. We still have a lot of housing to build. This is why construction companies are making deals to move their products. Additionally, mortgage rates soared this fall, causing builders to be wary of homes that haven’t yet begun construction.
Now that mortgage rates are lower, we will need more time to complete more homes, and builders will feel more comfortable starting on homes that are still under construction.
- 1.6 Within a few months of supply, the homes will be completed and ready for sale. 78,000 houses.
- 5.4 Several months of the supply are homes still under construction. 267,000 House
- 2.2 Several months of the supply are homes that haven’t even started construction yet. 106,000 House
With the most homes under construction, damning sentiments have been circulating on social media for 18 months that a huge amount of housing stock will be on the market, with 78,000 homes at the end of December. Yes, in a country with a population of more than 335 million people and more than 157 million people working, 78,000 new homes have been completed for sale. This is why I emphasize that reading is a good thing.
All in all, you can see what happened to new home sales when interest rates were heading towards 8%. In other words, interest rates have slowed. Builders were doing their best in an environment of high mortgage rates. But with the Fed’s rate hike cycle over and mortgage rates rapidly dropping by 1.5%, we need to bring more single-family homes into the economy.
Given today’s inflation numbers, I hope the Fed realizes that the federal funds rate and mortgage rates are still too restrictive. If mortgage rates fall further, I hope we don’t see the Fed governor on TV complaining about how tough their jobs are with mortgage rates at 6%. It’s time to get off that train and get back to pro-housing.