Troubling Sign: New Home Sales Resume Their Decline

Economic Storm Clouds Continue to Build

Photo of home under constructionIn what many feel is yet another sign of a brewing economic storm, sales of new single-family homes in October showed a significant drop of 8.9% below the rate of home sales in September, according to new data from the United States Census Bureau. With this result, the inventory of new homes available for sale jumped to 7.4-months, a 14% jump in unsold newly constructed homes.

See more on this troubling report on housing…




I first raised the specter of a looming recession earlier this year based on multiple variables, but including housing which is a major component of the U.S. gross national product (GNP). The last major recession in 2007/8 was predominantly driven by a collapse in the housing sector, exacerbated by absolutely loony mortgage lending practices.

More and more indicators are emerging to suggest that housing has begun a serious downturn – putting the economy at risk of a recession. Now this latest Census data adds more fuel to that slowdown scenario.

Fool Me Once, Shame on You…Fool Me Twice, Shame on Me

Most Strata-gee readers know that I consider single-family housing and residential construction to be one of the top drivers of the custom integration industry. So this report says sales of new single-family homes dropped in October to a seasonally adjusted annual rate (SAAR) of 544,000. This number is a significant 8.9% below the September rate of 597,000 and fully 12% below the rate for October 2017 of 618,000.

October 2018 New Home Sales

The drop in new single-family home sales is clearly evident as you look at the trace on the chart here. Except for slight bumps up in May and September, new home sales have been declining steadily since March [Click to enlarge]

To a certain degree, I was fooled by a bump UP in the rate in September. Since May of this year, the rate of sales of new homes has been declining monthly. Then, in September, we saw the rate jump from 591,000 in August, to 597,000 in September. This appears to have been what financial analysts call the “dead cat bounce” – a statistical anomaly where after months of decline, there is a short bounce up, only to begin declining again.

Overall though, the rate of new-home sales has actually been declining since the peak for 2018, which was in March with a rate of 672,000. Since then there were a couple of minor bumps up in May and September – but an overall downward decline since March.

Inventory of Unsold New Homes Increases




As a result of declining sales, the existing inventory of newly built homes available for sale has grown from a 6.5-month supply in September, to a more substantial 7.4-month supply in October. Making matters worse, mortgage interest rates are increasing, making homes less affordable for buyers.

Separately, CNBC is reporting that a separate report by the National Association of Realtors indicates that pending home sales, those existing homes upon which a purchase contract has been signed, have also declined in October – the tenth month in a row that home sales declined.

From CNBC:

Expectations for a stronger housing market in October fell short. Pending homes sales, a measure of signed contracts to buy existing homes, fell 2.6 percent compared with September, according to the National Association of Realtors. Sales were down a steeper 6.7 percent compared with October 2017. That makes the 10th straight month of annual declines.

Other Industries Showing Signs of Stress




More industries, such as automotive, are showing similar downturns with GM announcing this week that it would close five North American factories and layoff nearly 15,000 workers. Megatrends are affecting the automotive industry, and that certainly is part of this equation. But more and more, we are discovering sectors describing downturns.

Finally, remember that new, higher level of tariffs being imposed by the U.S. government take hold this January, less than two months from now. If you haven’t read my recession warning report from August, you may want to read it now. It contains five suggestions for ways to prepare for an economic downturn which is increasingly looking imminent.



About Ted

A sales and marketing specialist - primarily in the technology industry - I've experienced a sort of "circle of life" in business. I've been a mass merchant retailer, a specialty retailer, a specialty manufacturer, a large volume manufacturer, a distributor, and even represented sales representatives. Now the owner of a marketing company that works with a variety of businesses on improving their strategic marketing and business development - I analyze issues from all angles to develop holistic solutions.

Comments

Troubling Sign: New Home Sales Resume Their Decline — 7 Comments

  1. Break it down by selling price and then ring that bell again. The market all lumped together doesn’t inform my activity much for my target demo. It may, if you give us the data specifically, if not, it just sounds like scare tactics. Give it to us straight.

    • Break it down by selling price and then ring that bell again. The market all lumped together doesn’t inform my activity much for my target demo. It may, if you give us the data specifically, if not, it just sounds like scare tactics. Give it to us straight. By region would be nice also.

    • Hi Loren,

      To my knowledge, the Census does not report based on unit sales price. They do track the average price of a newly constructed home, which given the universal pricing of raw materials like lumber is fairly consistent around the country.

      This is not local sales data from your local home builders association. This is big data of overall collective national economic impact.

      Scare tactics? I will continue to fly the red flag of warning of the evidence of an impending economic downturn. You are free to ignore the signs. But if I were you, I’d be more scared of being ignorant.

      Forewarned is forearmed.

      Thanks for reading!

      Ted

      • Here’s my view from our little isolated island of bliss. High end resales continue to overwhelm us with more and more new jobs every week. I’ve even had to learn how to say the N word aain… that’s NO. There’s more high end lumber sprouting from the desert than I can remember (even I as a confirmed resale retrofit maven have multiple new builds currently in progress). Maybe we are just lucky? I am definitely blissful going forward, I’ll take it and ride this wave until D.C. mucks it up again with their imbecilic powergrabbing hyper-partisanship. Boom / bust cycles will continue and we overconfident optimists will somehow survive and at times thive… Chicken Littles will continue to cluck their clickbait and everything will turn out how it turns out. Good luck to us all!

        • Hi Loren,

          Your “clickbait” slam is duly noted.

          However, I will continue to warn you and all Strata-gee readers of the gathering economic storm. This is America…you are free to ignore the warning signs.

          Thanks for reading!!

          Ted

  2. Ted, Thanks for staying on this topic. I re-read your article from August. Many of the things nationally we don’t have control over, but we do have control over our companies, or should. Yes, watch for the puff of smoke. thanks!

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