Don’t Count on Another Double-Digit Growth Year for New Home Sales in 2017

Friday, December 30, 2016 by Zelman & Associates

For November, the Census Bureau reported that new home contracts were 592,000 on an annualized basis, trailing only July of this year for the best pace of the recovery thus far. Assuming a seasonally-adjusted pace of at least 585,000 in December and no meaningful revisions to prior months, the year will reach our 565,000 estimate, which would represent 13% year-over-year growth.

The double-digit growth threshold is noteworthy given that it laps a 14% increase in 2015 and would mark just the sixth time since the government started tracking new home sales in 1964 that back-to-back double-digit increases were registered with the others being 1971-72, 1976-77, 2003-04 and 2012-13. Somewhat remarkably for a highly-cyclical industry, three consecutive double-digit increases have never been achieved.

Rather than 2017 breaking that mold, we believe that single-digit growth is more likely next year, largely due to an anticipated headwind from the recent spike in interest rates. It would be almost unprecedented for new home sales to not decelerate from the current pace of growth in 1Q17 given the mortgage rate backdrop. This line of thinking led us to reduce our 2017 projection for new home sales to 610,000, or 8% growth, from 13% previously when we published our macro housing forecasts earlier this month.

While the argument for sustaining the current growth momentum would likely be driven by optimism from a rising stock market and a potentially more business-friendly political backdrop, we prefer to side with the historical odds that strongly suggest the market is set for a solid year in 2017, albeit a slight pause from the environment of 2015-16, particularly with labor supply remaining a challenge.

Don’t Count on Another Double-Digit Growth Year for New Home Sales in 2017

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