Maurie McGuire
An updated housing report by the Commerce Department (CD) Thursday showed sales of new single-family homes are on an annual pace to be the strongest this sector of the economy has seen in over 7 years. They site the August rate as 22% higher than last year and the 9th straight month of double-digit gains which is only newly constructed homes and doesn’t include existing home sales. The new home sales are tracked separately as an economic sector because they employ labor and purchase manufactured goods. An existing home sales report by the National Association of Realtors had different findings and was published in our blog below on 9/23/2015.
At the current pace it would take 4.7 months to sell existing inventory which is below the average of 6 months. Even with the increased demand prices were only up 0.5% in August. The average yearly price gain for new homes in 2015 is 3.6%, down from an average of 7.1% in 2014. The slower price growth pace encouraged more first-time buyers to purchase an existing home in August. The CD sited the improving jobless rate and low consumer inflation that is helping fuel demand for housing.
Homebuilders such as KB Homes reported double-digit gains last Thursday on orders and deliveries with an average sales price increase of 9%. On Monday Lennar Homes said there was “significant pent-up demand”. According to Richard Moody, Regions Bank chief economist, pre-sales of new homes accounted for over one-third of all new home sales over the past seven months.
See Santa Barbara County Real Estate Data here
Manufacturing however is a different story with increased debt and lower profits resulting in more layoffs. Housing’s resurgence is good news as manufacturing has lost momentum. If manufacturing, which is 12% of the economy, doesn’t recover the other 88% of the economy will have to make up for those losses. To date the other areas of the economy have been improving. Jobless claims are at levels that were once associated with full employment and this should bode well for the housing market going forward.
Even with the loss of manufacturing there are contributors to the overall health of the consumer that is freeing up cash and going into housing; the price of oil is down 50% since last summer, the value of the dollar has jumped to the highest in a decade and interest rates, courtesy of the Fed, remain historically low. Manufacturing may weaken even further in October but it’s pretty clear the trend for housing is up and will continue to contribute more to the economy as the mix of new homes shifts from multifamily to single-family and existing homes.
One can take away that because there is low existing home inventory new home builders are stepping in to fill the demand. Classic supply and demand capitalism!