New home sales for April came in well below expectations, the Census Bureau said Tuesday.
Sales fell almost 6% last month, to an 863,000 annual pace (figure below). Consensus was looking for 950,000. The range, from nearly five-dozen economists, was 725,000 to 1.04 million.
It marked the third consecutive miss for US housing data. Last week, both starts and existing home sales disappointed. Notably, March’s blockbuster jump in new home sales was revised considerably lower.
Attempting to sort out the myriad competing dynamics in an effort to get anything like a “clean” read on things is virtually impossible.
Prices are elevated (that’s an understatement), but mortgage rates are near record lows.
Some companies have accepted that work-from-home arrangements will likely be a fixture going forward (mass pestilence or no mass pestilence), while others are calling employees back to the office with 50% of Americans now at least partially vaccinated (40% fully vaccinated).
Higher housing prices should constrain demand a bit, but what many describe as an acute dearth of supply is likely to keep the market out of balance for quite a while longer.
Good luck crafting a coherent narrative.
The median new home price rose 20.1% YoY in April to $372,400. The average selling price was $435,400. Months’ supply rose to 4.4 in April from 4.0 in March, so I suppose you could argue that some normalization is observable at the margins.
Separately, the latest read on the S&P CoreLogic Case-Shiller National Home Price index showed prices rose 13.19% in March, following a 12% rise in February. March’s gain was the biggest since December of 2005, the year televisions were invented and cars replaced horses, as far as many Robinhood’ers know.
The 20-city gauge posted a YoY gain of more than 13%, the most since 2013.
“These data are consistent with the hypothesis that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” S&P’s Craig Lazzara, global head of index investment strategy, said Tuesday.
“This demand may represent buyers who accelerated purchases that would have happened anyway over the next several years,” Lazzara added. “Alternatively, there may have been a secular change in preferences, leading to a permanent shift in the demand curve for housing.”
Again: Good luck crafting a coherent narrative.
I’ve sometimes thought that for supply-constrained markets, a relevant metric is sales volume as % of supply. Anyone have, or want to derive, that for new home sales?
Did a quick and dirty from https://www.census.gov/construction/nrs/index.html data and it looks like sales as % of supply peaked in 3Q20 and in April was down at 2Q20 levels.
Expectations rise as incomes decline?
My favorite economist is William Goldman- Follow the Money, Nobody knows anything….
“This demand may represent buyers who accelerated purchases that would have happened anyway over the next several years,” Lazzara added. “Alternatively, there may have been a secular change in preferences, leading to a permanent shift in the demand curve for housing.” Supported by what, exactly? Our internal population growth rate is insufficient to maintain the base. People who get a new dwelling leave an old one. If the one left behind is dilapidated then stock will just have been replenished. But if not, then soon there will be a lot of old empty homes. In my metro in KC developers are adding tens of thousands of new apartments, most of which are not particularly affordable. I can’t imagine this activity won’t begin to change the balance of the stock. Our population is not growing much so I’m not sure who’s moving in to these expensive boxes.
Another great point from Mr. Lucky. Most of those housing units do not simply vanish.
Perhaps there is some nuance, though, if a large portion of the purchases are second homes. But outside of the higher income readers here, how many buyers can afford such a luxury? (Our worldview is so colored by our immediate cohort, isn’t it? As in “Everyone is buying a couple of Peletons!”)
Anecdotally, this new demand has been a godsend for many second home owners who came to realize what a money sink second homes can be. Especially when they finally accept that their grandchildren are too busy with summer activities designed to help get them into Dartmouth or Williams to come up and spend time at those homes with grandma and grandpa.
Reality will sink in, once again, and the new owners will try to rent them out and end up losing money on that as well.
To Mr Lucky’s point on expensive boxes, I see Boomers moving into those boxes locally where I live, on a very small scale admittedly, I live in a small town outside of Philly. But yes more apartments are rumored to be in the plans to be built. Regarding demand, I think of demographics. I see Millenials driving that bus and should for this decade; supply is low and buyers are slowly starting to balk at price.