New-home sales show why permits are falling
Today,
new-home
sales
came
in
slightly
below
estimates.
The
three
monthly
revisions
were
positive,
but
one
glaring
data
line
shows
why
single-family
permits
have
been
down
for
three
months.
The
total
active
inventory
of
new
homes
completed
and
ready
for
sale
is
now
above
2019
levels.
This
means
that
some
builders
will
be
more
cautious
about
issuing
permits
if
they
believe
they
can’t
sell
the
homes
they
already
have
for
sale.
Currently,
5-unit
permits
are
already
at
COVID-19
recession
levels.
If
the
trend
continues,
the
workers
building
those
units
risk
losing
their
jobs
once
they
finish
their
projects.
I
discussed
this
recently
on
the
HousingWire
daily
podcast.
However,
new
home
sales
are
still
in
an
uptrend
from
the
lows
of
2022,
and
purchase
application
data
for
the
new
homes
is
still
growing.
So
why
are
we
talking
about
single-family
permits
heading
lower?
The
builders
aren’t
the
March
of
Dimes
folks;
they’re
here
to
make
money!
From
Census:New
Home
Sales:
Sales
of
new
single‐family
houses
in
May
2024
were
at
a
seasonally
adjusted
annual
rate
of
619,000,
according
to
estimates
released
jointly
today
by
the
U.S.
Census
Bureau
and
the
Department
of
Housing
and
Urban
Development.
This
is
11.3
percent
(±15.5
percent)*
below
the
revised
April
rate
of
698,000
and
is
16.5
percent
(±16.2
percent)
below
the
May
2023
estimate
of
741,000.
That
was
the
new
home
sales
data.
Let’s
examine
the
critical
data
lines
and
inventory
to
connect
the
dots.
Active
inventory
above
pre-COVID-19
levels
When
you
think
of
the
United
States,
a
country
of
336
million
people,
with
more
than
159
million
people
working,
a
number
like
99,000
completed
new
home
units
for
sale
sounds
like
a
tiny
fish
in
the
vast
ocean.
While
that’s
true,
for
the
builders,
this
means
inventory
is
piling
up
on
them
to
the
point
where
some
builders,
most
likely
the
smaller
ones,
are
curtailing
future
permits.
As
we
can
see
in
the
chart
below,
we
are
above
2019
levels
today.
Monthly
supply:
9.3
months
From
Census:
For
Sale
Inventory
and
Months’
Supply:
The
seasonally‐adjusted
estimate
of
new
houses
for
sale
at
the
end
of
May
was
481,000.
This
represents
a
supply
of
9.3
months
at
the
current
sales
rate.
For
Sale
Inventory
and
Months’
Supply
The
seasonally‐adjusted
estimate
of
new
houses
for
sale
at
the
end
of
May
was
481,000.
This
represents
a
supply
of
9.3
months
at
the
current
sales
rate.
This
has
been
a
confusing
topic
over
the
past
few
years
because
people
see
this
big
spike
in
monthly
supply
and
some
analysts
imply
that
it’s
2008
all
over
again
and
home
prices
are
on
the
verge
of
a
historical
price
crash.
Here’s
the
truth:
In
2007,
active
inventory
was
4
million
using
the
NAR
data,
and
even
then
the
builder’s
completed
units
of
sale
never
reached
200,000.
So,
you
can
understand
why
some
people
reporting
this
are
terribly
confused.
Anyone
who
implies
this
is
playing
rookie
ball,
as
the
total
active
listing
from
the
NAR
is
nowhere
close
to
the
4
million
we
saw
in
2007;
it’s
1,128,000
currently.
Breakdown
of
supply
data
As
you
can
see
below,
most
of
the
new
home
supply
is
still
under
construction
or
construction
hasn’t
started
yet.
Even
today,
in
2024,
after
the
COVID-19
production
lag,
we
still
have
a
traditionally
high
level
of
homes
that
have
not
started
yet
and
are
under
construction.
The
reason
is
that
the
builders
took
on
a
huge
backlog,
and
with
mortgage
rates
still
around
7%,
they’re
slowly
moving
through
that
backlog
to
ensure
the
demand
is
there
when
those
homes
are
completed.
We
must
remember
that
not
all
builders
are
the
same;
many
smaller
builders
don’t
have
the
luxury
of
paying
down
mortgage
rates
for
their
buyers.
Here’s
the
breakdown
of
supply:
-
99K
completed
homes
for
sale
=
1.9
months -
278K
homes
under
construction
=
5.4
months -
104K
homes
not
started
yet
=
2.0
months
I
have
a
model
for
the
builders
regarding
monthly
supply.
Now
that
active
inventory
ready
for
sale
is
back
to
normal,
this
model
can
explain
why
single-family
permits
have
been
falling
for
three
months
in
a
row.
Here’s
my
model
for
understanding
the
builders:
-
When
supply
is
4.3
months
and
below,
this
is
an
excellent
market
for
builders. -
When
supply
is
4.4-6.4
months,
this
is
just
an
OK
market
for
builders.
They
will
build
as
long
as
new
home
sales
are
growing. -
When
supply
is
over
6.5
months,
the
builders
will
pause
construction.
I
wrote
this
article
about
the
recent
housing
starts
report
and
broke
down
the
risk
to
construction
jobs
since
permits
for
5-unit
and
single-family
are
falling
together
now.
To
recap:
New
home
sales
missed
estimates
today
and
are
at
a
six-month
low,
but
the
real
story
is
that
active
inventory
is
starting
to
pile
up.
This
is
so
important
because,
for
the
first
time
in
a
while,
single-family
permits
have
been
falling
for
several
months.
That
is
a
negative
sign
for
the
economy,
as
building
permits
are
a
leading
indicator
of
an
economic
recession.
Now,
I
would
argue
that
the
smaller
homebuilders
are
being
impacted
more
than
the
big
publicly
traded
builders,
so
it
isn’t
as
bad
as
it
seems.
However,
the
stress
is
hitting
the
smaller
builders,
which
is
why
single-family
permits
are
falling.
This
happens
when
the
Federal
Reserve
stays
too
restrictive
for
too
long;
it
eventually
impacts
the
future
production
of
housing,
thus
making
their
fight
against
inflation
more
problematic
in
the
coming
years.
