Wind, rain and fire drive new home sales to 10-year high
New Home Sales (November)
NHS rose 17.5% M/M to 733,000, the highest since July 2007. The M/M change was the highest since 1992.
Buyers may be replacing homes lost to disasters. The largest increases were in the West, up 31%, and the South up 15%. These regions have recently been hit by wildfires and hurricanes resulting in the loss of many homes.
Many homes sold are not yet being built. At 35%, the share of homes not under construction was was notably above its 5-year average of 31%. This again suggests some replacement of lost homes as buyers hurry to get under contract given the low productivity in the home building industry.
Productivity is the biggest challenge. Homebuilder optimism is at an 18-month high but real data is far from that. Residential construction payrolls are at the same level as 2002, yet we have 500,000 less housing starts. The same number of employees are seemingly producing far less homes. This could be a measurement issue related to undocumented workers.
The tax plan presents some opportunities. The reduction in corporate taxes and other real estate developer friendly tax breaks should increase builder profit margins. This will increase the incentive to build lower priced homes where new supply has been lacking due to small profit margins.