Want A New House? It’ll Cost You A Half-Million

As expected, new home prices rose again in the US last month, data out Thursday showed.

A near 19% YoY increase pushed the median new home price to $417,000 in November (figure below).

That represented a 27% increase since the eve of the pandemic.

The average new home price was within shouting distance of a half-million at $481,700.

I’m a broken record on this. It’s unsustainable. Admittedly, the sheer number of times I’ve said as much suggests I might be mistaken. If a given phenomenon really is unsustainable, observers won’t need to use that adjective too many times. The Fed knows that all too well. If something truly is “transitory,” you won’t need to call it that for long.

Jokes aside, I’m firmly convinced that unless investors continue to encroach upon the market, demand destruction will eventually intervene to bring down prices. That’ll be especially true if a waning fiscal impulse and/or an economic slowdown squeeze would-be homeowners’ budgets.

Lenders could, of course, relax standards in order to increase the pool of eligible buyers, but the rate of price appreciation would still need to abate at some point. The value of real estate in the US has risen by $1 trillion or more in four straight quarters (figure below).

This is obvious, but somehow I feel like it needs restating: Home prices can’t rise 20% in perpetuity.

As detailed here last month, part of the issue is voracious demand from investors, who bought a record 18% of US homes purchased during the third quarter, according to Redfin data (figure on the left, below).

And then there’s the role of the Fed’s MBS purchases (figure on the right, above).

Thursday’s data showed new home sales rose 12.4% in November to a 744,000 annual pace. That was well short of consensus and towards the low end the range.

Still, the monthly gain was the largest since July of 2020 (figure below). The pace was a seven-month high.

Months’ supply dropped to 6.5, tighter versus October, but still much improved compared to the record lows seen this time last year.

There was incremental evidence that backlogs are worsening again. New homes sold but not yet started rose to a five-month high, for example.

This goes without saying, but another COVID wave could exacerbate inventory shortages, assuming concerns around the virus and associated containment protocols prolong supply chain disruptions and contribute to additional labor market frictions.

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5 thoughts on “Want A New House? It’ll Cost You A Half-Million

  1. According to the October, 2021 Bureau of Labor Statistics (BLS) report: employment and real output are expected to continue to grow through 2030, at which point 25% of the US population will be over 65. BLS is expecting that 11.9 million jobs will be added, bringing the total employment to 165.3 million in 2030.
    There will be a lot of demand for housing in the next decade.

  2. I recall that the movie “Its a Wonderful Life” was my first introduction to an America where many could only be renters, and the power that afforded the landlords. If something isn’t done to prevent the purchase of private homes by investment groups with zero cost dollars, its not hard to see where this will lead.

  3. just for interests sake … a new bungalow in a small Ontario town 100 miles from Toronto will cost you 900k in Canadian dollars.

  4. TBH, I thought the yield on US RE a few years ago was an anomaly. In Paris or London, for resi., you’re lucky to make 3-4% gross and taxes are more punitive than US’s…

    If you’re an institution, desperate for long dated fixed income and your alternative is 10Y Treasuries yielding nominal 1.5% (let alone negative as is often the case in Europe)… what is there to stop the house prices rising till the yield converge to the 10Y?

  5. During the four years I lived in Columbus, OH, while at grad school, local developers added thousands of new housing units, fifty percent of which were in the multi-family category. I see the same thing in KC now. In the last five years there has been a huge surge in apartment developments. Most of the new stuff is in the form of fairly cheesy, multi-story, wood-framed structures of four or five stories. While billed as “luxury” units and renting for an average of $1700/mo for 2BR units, in a metro that’s barely growing, I’m not sure how long the renter’s “boom” can keep going.

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