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03/12/20 01:08 PM EDT
HOUSING: NHS | Encore's & Incrementals
Takeaway: Near all-time tight inventory conditions in the existing market coupled with near all-time lows in rates continue to push New Home Demand.




In a laudatory first encore to an enviable year of fundamental acceleration and equity outperformance in 2019, New Home Sales made a new cycle and 151-month high in January, rising +7.9% sequentially and +18.6% Y/Y to 765K.

We’ve been over the evolution of the housing cycle countless times, but just to quickly redux the latest incrementals with respect to the prevailing condition set:

Global externalities and wrong-sided consensus positioning have conspired to deep-six the 4Q19 Reflation narrative and catalyze a harrowing duration grab which has served to drive 10Y/30Y yields to all-time lows.  

Meanwhile, the domestic labor market has remained resilient in the face of global Quad 4 conditions and Consumer Confidence remains near-cycle highs as those global externalities (COVID-19) aren’t (yet) of tangible enough concern to materially dent the accrued positive sentiment associated with the longest expansion ever and the sirenic whisperings of equity ATH’s, Central Bank largesse and the promise of continued fiscal profligacy. 

At the industry level, all-time tight supply in the existing market continues to support relative favorability in New Home Sales and Construction and, together with improving affordability, have continued to cultivate a kind of if-you-build-it-they will-come dynamic, particularly across the entry-level market.

Looking forward, the broader setup remains unchanged from the one we’ve been highlighting for months.  That is, while strong January Purchase Application data augurs further solidity in existing market volume and fresh highs in January SF Permits augurs ongoing solidity in SF Starts activity, the favorable comp setup will begin to recede across housing demand metrics (including NHS) over the next couple months which should result in a progressive RoC deceleration in reported volume growth.   

Again, not “bad”, just “(slightly) less good”.  

We are now pushing past peak seasonality as well and the extent to which derivative virus effects impact construction supply chains and/or construction cost inflation remains a wild-card as does the prospect that virus amplified Quad 4 conditions (finally) ushers in the long-awaited monetary-fiscal coordination (see Hong Kong’s QE for the People announcement yesterday and headlines around potential German Fiscal stimulus this morning).








About New Home Sales:

Each month the Census Department releases the New Home Sales report, which measures the number of newly constructed homes that have been sold in the month. The difference between the New Home Sales report and the Starts and Permits report is that New Home Sales only includes single family spec homes built and sold by builders, and does not include condos, apartments, or owner-built units. This is why New Home Sales typically run at roughly half the rate of Starts.


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