New home sales were more robust than expected in August, data out Friday showed.
Sales ran at a 740,000 annual pace last month, ahead of the expected 715,000 rate. The range of estimates, from six-dozen economists, was 650,000 to 784,000.
July’s headline print was revised higher. August marked two consecutive monthly increases following a three-month swoon (figure below).
You might suggest the pace of sales is moderating, but “normalizing” might be a better way to describe the situation. Last month’s pace represented a 24% decline from August 2020, when pandemic dynamics were well on the way to creating what many describe as a new housing bubble in the US.
August’s increase was in part attributable to homes not yet started, pointing to steady construction activity going forward.
Friday’s data suggested demand is firming, but there’s little question that cost is becoming an impediment. Price increases have chipped away at demand, while builders rush to clear backlogs and alleviate an acute supply shortage.
Earlier this week, the NAR cited “financial limits” while discussing a slowdown in existing home sales.
The median price for new homes rose more than 20% YoY last month, to $390,900 (figure below).
The average price was $443,200.
I’m a broken record on this: That simply isn’t sustainable. The median household income in the US is around $67,000. A family making $67,000 can’t afford a half-million-dollar home. Belabored attempts to claim otherwise stand in open defiance to common sense.
Consumers seem to agree, by the way. The September vintage of the University of Michigan’s sentiment survey showed Americans’ assessment of buying conditions for homes is near a record low (figure below).
And no, rock-bottom mortgage rates facilitated by the Fed aren’t enough. In fact, the Fed is plainly making things worse at this juncture, which is one reason commentators (and some Fed officials) have argued for tapering MBS purchases more rapidly than Treasury buying.
Supply pressures are abating, though. Houses for sale in August rose more than 3% from July to 378,000, the most in nearly 13 years. Months’ supply was 6.2, 60% higher than January.
Nearly a quarter of new homes sold last month went for between $500,000 and $749,000.
The acknowledgment about the fed hurting averages families, at least in regards to housing, makes me smile.
Should we assume a taper will be met by market revolt and lower rates/ more QE in the future?
According to Statista, the US ranks 23rd out of 34 entries as it relates to home price-to-income. Considering the current and coming wage inflation pressures, perhaps rising home prices is more sustainable than you think.
Home ownership rate is only 65%. Ownership rate declines as income falls. So the median household by income doesn’t line up with the median house price.
Here is an article summarizing a Zillow report on the average homebuyer in 2020.
https://www.businessinsider.com/typical-us-homebuyer-age-salary-location-budget-housing-crisis-2021-9?op=1#theyre-also-more-educated-than-the-total-population-of-us-household-decision-makers-4
Their median income was $86,000, substantially higher than the median income of the entire country. Note the staggering racial disparities.
That was 2020, but I’m fairly certain that homebuyers as a group have long been skewed toward the higher income part of the population. See, e.g.:
https://www.statista.com/statistics/205440/homeownership-experience-in-the-us-by-income-group/
(I suspect, without proof, that the homeowners in the lowest income group are more likely to be older retired persons rather than households who somehow just bought a house on their $35,000 income.)
All that said, at some point the price-rate-income-supply-motivation furball has to produce a sales (volume) decline.
Especially considering that some of the 2020/21 sales surge has been for second homes. Reports from early 2021 indicate that 15% of new home sales were for second homes; I haven’t found the number for existing home sales.
Yeah, this is a good comment. As you allude to there at the end, though, this is one case where it just can’t go on forever. I mean, even people buying second homes or people making $100,000 are unlikely to want to buy if prices continue to go higher — if for no other reason than the fear that they could be top-ticking the market.