November New Home Sales: Setting Up for a Weak End to 2018

• November new home sales rose 16.7 percent from October, to 657,000 units (SAAR), according to the U.S. Census Bureau. Sales were down 7.7 percent from November 2017.
• Inventory of new homes for sale rose 0.6 percent from October and 14.2 percent year-over-year, to 330,000 homes — the highest points since January 2009.
• The median sales price (non-seasonally adjusted) of new homes sold in November 2018 was $302,400.

Even after an autumn that proved stronger than first reported — initial data for August, September and October were all revised upward — new home sales are poised to end 2018 down decidedly from a year ago. November was an OK month in terms of volume, but was nevertheless well below November 2017, when a rush of buyers likely pushed their closing dates forward prior to new tax laws taking effect. And new home sales often track existing home sales closely – and after a decent November, existing home sales plummeted in December. The main culprit for the year-end weakness is a combination of mortgage rates that hit a seven-year high in November and a pullback in new construction starts that began early in the year. It's been a season of anxiety for builders over the past few months, driven by worries of a potential broader economic slowdown, high construction costs and short-term uncertainty as a result of political volatility. The partial federal government shutdown also delayed the collection and publication of critical housing market data widely used in long-term planning and decision making. There's at least the potential for one of these weights to be lifted, if only temporarily – mortgage rates have retreated lately from recent highs, offering buyers more wiggle room in their budgets to afford somewhat pricier new homes. Even so, December and January sales are likely to be softer than November, despite lower interest rates. The path of mortgage rates has shifted definitively lower since the fall, but the builder pipeline is a long one and it will take them many months to respond to those changes, if they decide to at all given the longer-term storm clouds on the horizon. The effect of lower rates is more likely to be seen in new construction prices than in sales numbers.

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