New Home Sales Surge, Median Price Drops Most Ever

New home sales were higher than expected in December, data out Wednesday suggested.

It was a welcome development at a somewhat awkward juncture for the US housing market.

Although the rate of price appreciation has slowed at the margins, the latest read on the Case-Shiller gauges showed the 20-City index rose 18.3% YoY in November, more than anticipated. The national gauge posted an 18.81% advance (figure below).

“All 20 cities saw price increases in the year ended November 2021, and prices in 19 cities are at their all-time highs,” Craig Lazzara, Managing Director at S&P DJI, said Tuesday.

With prices loitering near records and mortgage rates on the rise, the obvious concern is that between an increasingly onerous downpayment burden and higher financing costs, demand destruction will set in.

But it’s not clear if “concern” is the right word. The market is woefully out of balance, and while it’s preferable if supply catches up, a scenario where demand catches down would work too, assuming it helps prices stabilize so that the dream of home ownership doesn’t drift even further out of reach for everyday people.

The Fed may decide to treat MBS differently when the Committee begins balance sheet rundown later this year. That too could help prices come off the boil. The presence of investors in the market hasn’t helped — increasingly, real people are being shut out, condemned to rent, while profiteers seize on cheap financing to hoard homes for the sole purpose of turning a profit. China’s Xi wouldn’t be amused. Housing, after all, “is for living in.”

In any event, new home sales rose nearly 12% in December, the government said Wednesday. The annual rate, at 811,000, was well ahead of consensus (760,000). The pace was a nine-month high (figure below).

Demand in December was likely buoyed by expectations of higher mortgage rates and slowly improving supply trends. Months’ supply was 6 in December, down for a second month, but still much improved versus the historically tight market seen during late 2020.

Although the number of homes sold that were still under construction rose to the highest in nearly a year, already completed residences rose to a three-month high. Last week, the latest read on existing home sales betrayed the first decline in four months, a drop the NAR blamed on a dearth of supply. Redfin, meanwhile, said buyers face “bare shelves.”

The average selling price for new homes in the US was $457,300 in December. The median was $377,700.

Although median prices rose 3.4% YoY (and remain extraordinarily elevated), I suppose it’s worth noting that the MoM drop was the largest ever in absolute terms and among the five largest on record in percentage terms.

I’m sure there’s an “explanation” for that. Perhaps the housing market mavens among you can regale me.

Meanwhile, refi applications dropped 13% WoW and 53% YoY, the MBA said. “After almost two years of lower rates, there are not many borrowers left who have an incentive to refinance,” Joel Kan, the MBA’s Associate Vice President of Economic and Industry Forecasting, remarked. “Of those who are still in the market for a refinance, these higher rates are proving much less attractive to them.”