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posted on 26 January 2018

Outlook For New Home Construction May Be Excellent - Or Not

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2017 was a relatively good year for residential sales. 2018 could be even better. However, residential sales remain a fraction of the peaks seen prior to the Great Recession.

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Note that December existing home sales continued a long term deceleration trend - with inventory now at historical lows. Intuitively, this should be positive for new home sales - as not enough existing homes are available for purchase so new homes must fill this gap.

The graph below shows the sales for existing and new homes - and in 2017, sales were at 10 year highs.

Headwinds to Improvement of Home Sales

One headwind to continued improving home sales is that the USA has more residences than it needs. Many are in the wrong location, some are too big, and others are too far away from where one works .... this list can go on and on on.

‚ÄčBut the biggest impediment to home sales growth is that the rate of growth of household formation (red line in graph below) is near all time lows.

Overall, as the amount of existing homes for sale continues to contract - this should be positive news for new home construction. Some combination of new homes and existing homes for sale must meet the demand for new housing.

And as the yellow line in the above graph illustrates, the numbers of excess houses in the USA continue to contract.

2018 may see a significant improvement in new home construction and sales. However, the price increases of new home and existing homes keep eliminating potential buyers.

With mortgage interest rates rising and the sales prices of homes also going up - whatdda you think will happen? The rosy outlook could be dampened.

Other Economic News this Week:

The Econintersect Economic Index for January 2018 Economic Index improved and remains in territory associated with stronger economic growth.

Bankruptcies this Week from Privately-held PES Holdings (a/k/a Philadelphia Energy Solutions)

Weekly Economic Release Scorecard:

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