October New Home Sales: The 2018 Slide Continues

• October new home sales fell 8.9 percent from September and 12 percent form a year ago, to 544,000 sales (SAAR), according to the Census Bureau.
• Inventory of new homes for sale rose 4.3 percent from September, the largest monthly gain since September 2013. October new home sales were up 17.5 percent from a year ago.
• Sales from the prior three months were revised upward by more than 53,000 units, with the majority of that upward revision coming to September’s initially very disappointing results.

The steep decline in October new home sales was an unpleasant surprise for a market that was expecting at least a modest rebound from an ugly September. But as it turns out, September wasn’t as ugly as initially reported with the benefit of backward revisions, and October was much weaker. As we close in on the end of 2018, it is abundantly clear with the benefit of hindsight that the new home sales market took a turn this year, and not for the better. Since the end of 2017, new home sales volumes have endured their longest slide since 2010, when the market was still very much in the grips of the recession. For a time in 2017, it looked as though the new home sales market was going to bust through the 700,000 annual sales barrier and maybe on toward the million-plus sales level reached during the height of the boom. Instead, new home sales look set to bump around between the 500,000 and 600,000 annual sales volume at which they've been stuck for several years. Nothing on the horizon in 2019 looks likely to shift this calculus: Materials costs for builders have retreated slightly from their early-summer highs — and could retreat further if trade tensions ease next year — but labor costs continue to rise and builders point to pervasive labor shortages. On the demand side, rising mortgage rates will eat into what buyers can afford and existing home inventory is starting to perk up after a long lull, meaning buyers will have more options. While we expect some localized rebound in new construction next year as homeowners rebuild from this year’s record natural disasters in the Southeast and West Coast, it won’t be enough to offset the longer-term weights holding down home building.

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