By: Pierre G. Villere
The top line economic indicators are mixed these days, but we remain bullish at our firm about the future of the construction industry. My frustration is with the press, from CNBC to the major news networks on both the conservative and liberal sides of the political spectrum, with their need to fill the day with news. This results in long, anguished speculation about the state of the economy, and just more of the Chicken Little Syndrome, as I call it (“The sky is falling! The sky is falling!”).
Add to that the change in traditional print media: Gone are the days when we unfolded the morning paper, whether it be local or publications like the Wall Street Journal, when yesterday’s news was locked in place, in print, right before our eyes. Now all newspapers and leading business journals are updating and changing in real time, so that a view of their homepage on our phones or tablets reveals the up-to-the-minute economic news, and it is often Chicken Little in nature. Remember, for some reason, there isn’t the same emphasis on news that is good about our economy, at least in my perception.
This drives me crazy.
But then we got a breath of fresh air. It was with great satisfaction that I read the National Association of Home Builders’ press release that new housing sales rebounded strongly in August: Contracts for new, single-family home sales increased in August by 7.1 percent to a 713,000 seasonally adjusted annual rate, according to estimates from the joint release of Department of Housing and Urban Development and Census Bureau data. And this increase came off an upwardly revised July estimate, which was increased from an initial reading of 635,000 to a new estimate of 666,000. Year-over-year, the August estimate is a whopping 18.0 percent higher, as sales continued to grow in August supported by lower mortgage rates, which should continue for some period of time.
Other indicators, such as new car sales, continue to soften, as does the sales of new recreational vehicles, or RVs. But as I have questioned so many times in prior columns, isn’t this just the result of many prior years of consumers going through a vehicle replacement cycle, one that was stretched thin through the last recession? I firmly believe that is the reason behind the slowdown, yet the business press continues to harp on the subject. Just how many new cars and RVs can we pack into America’s driveways?
Well, the new housing market paints a very different picture. Yes, affordability, selection, material input costs and labor shortages all continue to be challenges that are a source of frustration to the national homebuilding community, but buyers continue to exhibit strength in their numbers. Total sales for the first eight months of 2019 were at 474,000 units, or 6.4 percent higher than the comparable total for 2018. We can expect the volume of new home sales to continue to expand along the current pace, subject to monthly volatility and supply-side cost concerns.
The NAHB release goes on to explain that inventory increased 2.5 percent from a year ago to a level of 326,000 single-family homes for sale in August, and the current months’ supply stands at a balanced level of 5.5. However, standing inventory increased in the “Completed” construction category to 81,000 units, suggesting an increase in inventory taking longer to be sold; this is good news for buyers, who have complained about the shortage of options when shopping for newly built homes.
And this expansion in activity unfolds despite increases in median new home sales price, or the price of a home in the middle of the distribution, which increased 7.5 percent in August to $328,400, compared to July, which is 2.2 percent higher from a year ago at $321,400.
This news is indeed a breath of fresh air against the backdrop of all the talk of a slowdown, and shows the construction industry in general, and the new housing market in particular, remains robust despite the Chicken Little Syndrome.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter – @allenvillere.