In news that probably shouldn’t surprise anyone, new home sales fell a second month in May, missing estimates in the process, data out Wednesday showed.
The 769,000 annual rate (figure below) was well short of the 865,000 consensus expected and came in near the low-end of the range (775,000 to 920,000).
Revisions lopped 108,000 off the last three months’ figures.
The latest read on the (previously) scorching US housing market came just a day after existing home sales logged a fourth consecutive monthly decline, which NAR chief economist Lawrence Yun blamed on supply, but also on “falling affordability.”
Soaring prices are “simply squeezing some first-time buyers out of the market,” Yun said.
The median sales price of new houses sold last month was $374,400, a record, while the average was $430,600 (figure below).
I’d gently reiterate my remarks from Tuesday: This probably isn’t sustainable.
The median price in May represented an 18% YoY increase. Although the comp makes this somewhat misleading, it’s still worth noting that the 12-month jump ranks among the largest in history (figure below).
Inventory rose in May, which is good news to the extent it helps alleviate the supply shortage but, again, one has to wonder whether we’re teetering on the brink of a situation where everyone (not literally “everyone,” but you get the idea) other than speculators and those buying properties in order to rent them, is priced out of the market.
My take on housing tends to be more straightforward (a euphemism for “simplistic”) than my granular musings on everything else, but that’s mostly because, for first-time buyers, it comes to down to one simple question: Can you afford it or can’t you?
Obviously, that doesn’t cover all the bases, but it’s a damn good starting point.
Throw in the potential reversal of some pandemic dynamics (e.g., less in the way of urgency when it comes to fleeing downtown for the suburbs and the return of some workers to offices) and you’re left with a recipe for a cooling market.
And yet, confusion reigns, apparently. “Aside from surging home prices squeezing some potential buyers out of the market, I don’t have a good explanation for the latest fall,” Pierpont Securities’ Stephen Stanley said, in a note cited by Bloomberg Wednesday.
Yes, “aside” from homes being unaffordable, this is a total mystery.
Stanley went on to say that he’s “pretty sure this is not an indication of a softening market.”
I feel the appropriate quote here would be from Vizzini, the Sicilian, when he said, “inconceivable!”
What is the average & median of the mortgages which correspond to the home sales data? If home builders (and/or the economy “animal spirits”) want to have success in selling more homes to first-time buyers, then building or sourcing homes at an absolute value (e.g. $400,000) and waiting for first-time home buyers to show up seems flawed.
Why not look at reasonable ranges for down payments, then factor in reasonable ranges for percentage of down payment relative to home sale. So, try to avoid assuming a first time home buyer can afford a home because they can scrape up 3% for a down payment – better to use a 10% to 20% range for down payment for estimation. This will probably demonstrate that a $400,000 home will probably not sell too quickly in some areas.
Time for some mortgage shenanigans to shore up the real estate market and quench the thirst for yield!
Long and short economic indicators are hitting an inflection point. Throw out the dot plot and open your mind to a very wide dipersion of outcomes. An infrastructure deal has been passed and there is more probably in the hopper. It is going to be very interesting by the fall this year.