The housing boom is here

Issue: FCW Prime November 2015, Posted Date: 11/3/2015
Author(s): Jonathan Trivers
The housing boom is here

In early August 2015 the business headlines were, “New home sales down.” You think, “Oh, no, the roller coaster ride that is new home sales continues.” And the same type of information continued into October, 2015.

It is true that June 2015 new home sales were less than May 2015 new home sales. But everyone but the government looks at the comparison to same time last year. Here’s the real news: For the first six months of 2015, new home sales are up +21.2 percent or 48,000 more new homes sold in first half of 2015 over 2014. At the same time, home values continue to go up for these new homes. In June 2014, median price of a new home was $268,000; in June 2015 the median price is $282,000.

The same trend in sales continued through September, which was the latest data from Census for this article. This is what it looks like:
New Home Sales
2013 – 429,000
2014 – 434,000
2015 (Est.) – 519,000

This estimate assumes the sales trajectory continues for the rest of the year. That means we will see a +85,000 new homes sold over last year that is equal to +216,000,000 (million) additional square feet of flooring or close to + $800 million in additional new home flooring sales. The number one upgrade item in new homes is flooring. We are not talking about $800 million in FHA carpet. So the gross margins for flooring for new homes will be better than ever.

Since new homes are no longer beige carpet in every room except kitchen and bathrooms (vinyl) the additional sales this year will effect better sales in carpet, wood, ceramic tile, luxury vinyl tile and to a smaller extent, laminate.

Existing home sales will not have the same percentage increase for additional flooring sales as new home sales will deliver but the overall sales of existing home will be the best since 2007. The Federal Reserve has announced that they will increase lending rates (they had not done so when this was written in early October, 2015) which will mean that mortgage rates will go up from a historically low number. That fear of increase and actual increase will spur existing home sales for remainder of 2015.

This is the real sales scoop:
2013 – 5,090,000 existing homes sold
2014 – 4,940,000
2015 (est.) – 5,300,000
Best ever – 5,700,000

Existing home sales for 2015 are within 93 percent of the best year ever whereas new home sales are not even at 50 percent of the best year ever. However, most of the existing home sales will not impact flooring sales until 2016 and beyond. That is great news knowing of excellent demand based on home sales in your market.

The really great news is the ripple effect of ever increasing median price of homes. Actually, it is the median price of homes sold, existing or new. But it impacts the actual value of a home that was not sold. If your neighbor’s house sold for more money than past sales of same type home, your home (not on the market) increases in value. The median price of homes sold in fall of this year was 24 percent higher than comparable time period in 2012. The more the median price of homes increases the more you want to invest in your home as the home now becomes a better asset. Increase value of home sale prices increases the sales of residential replacement!

That is really great news!