Another month, another fresh record for median new home prices in the US.
The median sales price of new homes rose 18% in October, the government said Wednesday.
At $407,700, the median price is now nearly $80,000 higher than it was in January of 2020 (figure below).
The average new home went for $477,800 last month, up more than $20,000 from September.
I continue to view this situation as wholly unsustainable. At some point, the inexorable price surge will lead to demand destruction, although the rising share of investors in the market might delay the inevitable.
Data from Redfin (profiled here earlier this month) suggests investors are encroaching on the US housing market like never before. Institutions and businesses that purchase residential real estate bought more than 90,000 homes in the third quarter.
The annual pace of new home sales rose 0.4% last month to 745,000 (figure below). That was below estimates. The median of 59 forecasts was 800,000.
There were signs of normalization in the October data. For example, months’ supply rose to 6.3, nearly double the historically low inventory levels seen this time last year and early in 2021.
As of the end of last month, there were almost 400,000 new homes for sale, the most since summer of 2008 (figure below).
The problem: More than a quarter of them hadn’t been started.
Earlier this week, data showed existing home sales rose 0.8% in October to an annualized pace of 6.34 million. The median selling price was up 13% from a year ago at $354,000.
The bottom is the same as it’s been for months. The market isn’t anywhere close to being in balance. It it were, prices wouldn’t be rising at an unsustainable pace and untold thousands of would-be first-time buyers wouldn’t be stuck pondering the surreal prospect that in order to be a “median” American homeowner, you need to be prepared to finance a $410,000 house. (Let’s not even talk being “average.”)
The NAR’s Lawrence Yun put a positive spin on things in comments accompanying the existing home sales data. “Inflationary pressures, such as fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment,” he said. (Never mind that making a respectable downpayment will run you one lightly-used Mercedes S-Class.)
The same Redfin data mentioned above suggested investors bought more than 67,000 single-family homes in the third quarter. They almost always pay cash.
This is going to take time and have to ramp up to have a meaningful impact on the housing shortage, but homebuilders are getting into factory built homes which cost, on average, under $100,000 and then are able to be quickly constructed on site- so a lot in the pre-established community must also be purchased. All in, typically under $250,000.
Unlike mobile homes, these are not moveable and qualify for traditional mortgages.
There was a good article in Monday’s WSJ.
“I continue to view this situation as wholly unsustainable. At some point, the inexorable price surge will lead to demand destruction, although the rising share of investors in the market might delay the inevitable”.
Hmm… if the institutional investors are comparing RE to FI and bonds right now yield negative, while resi. yields 4-5%, there’s still some margin for further compression…
Meanwhile, while prices rise, local governments are using the higher prices as an excuse to raise taxes. In the last five years mine are up 25%, paralleling the SlTCap.