Growth Of U.S. New Home Market Turns Negative

Following our first ever analysis of the total transaction value for existing home sales in the U.S., we're returning to more familiar territory in calculating the equivalent market capitalization for new homes sold in the U.S., where we find that it too appears to have peaked in March 2018.

Trailing Twelve Month Average New Home Sales Market Capitalization, Not Adjusted for Inflation [Current U.S. Dollars] and Adjusted for Inflation [Constant November 2018 U.S. Dollars], January 1976 - November 2018


In March 2018, the trailing twelve month average of the market capitalization of new homes sold in the U.S. peaked a bit over $20.3 billion. The trailing year average market cap went on to decline to $19.9 billion in June and to rebound to a high just shy of $20.3 billion in September. It has declined sharply in the months since, falling to an initial estimate of $19.2 billion for November 2018, the most recent month for which national data is available.

These significance of these changes are easier to see when we calculate the year-over-year growth rate of our trailing twelve month average for the new home market cap. The following chart reveals that the initial estimates for November 2018 have fallen into negative territory, which suggests that the new home market is experiencing some degree of contraction.

Inflation Adjusted Growth Rate of U.S. Trailing Year Average New Home Market Capitalization, January 2000 - November 2018


The initial year-over-year growth rate estimate for November 2018 is -3.3%, which if we re-do the growth rate math after adjusting all the market cap data for inflation to be in terms of constant November 2018 U.S. dollars, we find corresponds to an inflation-adjusted growth rate of -5.3%.

This deceleration parallels the trend we've seen in existing home sales since March 2018, but unlike that portion of the U.S. real estate market, the new homes market has greater economic impact, both for the businesses of U.S. homebuilders (Indices: ITBPKBXHB) and for the U.S. economy, where negative year-over-year growth rates indicate the industry has become an economic headwind.

On that count, Calculated Risk recently featured economist Tom Lawler's characterization of recent earnings calls for several firms in the industry, notably D.R. Horton (NYSE: DRH), the largest U.S. home builder, which has benefited in recent years by focusing on lower-priced, entry-level homes:

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