Down Payment Burden For New Homes Hits $105,000

New home sales in the US fell more than expected in March, data out Tuesday showed.

At 763,000, the annual pace missed estimates, but not by much. Consensus wanted 768,000. The forecast range, from five-dozen economists, was 700,000 to 827,000.

The 8.6% drop was the largest in a year and the third consecutive monthly decline (figure below), but the in-line print offered little evidence to support sundry dire narratives.

Months’ supply moved higher, and at 6.4 is now almost twice record low levels seen during the height of the pandemic real estate boom.

Prices are stratospheric. The average sales price of a new home in the US in March was a record $523,900. The median price was nearly $437,000. Both were new records (figure below).

While acknowledging that the average is misleading (it’s pulled higher by the priciest homes), there’s something wholly absurd about this.

In order to be “average” in America, a nation where homeownership is held up as attainable for all (or most) hardworking families, households need to conjure $105,000 in cash in order to make a respectable down payment.

To reiterate: An American family in the market for a new home that aspires to an LTV of 80% needs to have six figures in cash upfront to afford an “average” house without PMI. As a reminder, the “average” American doesn’t have $1,000, let alone $100,000 (figure below).

Regular readers may recall that the objectively unfortunate situation visualized in the chart actually counted as a very good outcome. As Bankrate wrote, documenting the results of a January survey, “the 44% of US adults who can afford to cover a $1,000 unexpected expense is the highest in eight years of polling.”

I’m not sure what’s more ridiculous: The idea that because “only” six in 10 Americans don’t have $1,000, the country is now richer than ever, or the notion that at least some of the households who don’t have $1,000 for an emergency room visit or a car repair do have 100 times that amount to spend on the “average” new home.

Even if you go by the median price, the situation isn’t much better. And it got worse in March. Note that the $437,000 figure cited above represented a 21.4% YoY increase, the briskest pace since November (figure below).

Data out earlier Tuesday showed the S&P/Case-Shiller 20-city index rose 20.2% in February on a YoY basis, the most ever.

Meanwhile, D.R. Horton reported quarterly results that easily beat analyst estimates. EPS of $4.03 compared very favorably to consensus ($3.39), and revenue of $8 billion represented a 24% YoY increase.

The company told investors that “housing market conditions remain strong despite the rise in mortgage rates.” As of quarter-end, “America’s builder” said it “continue[d] to experience demand that exceeds our pace of supply.”

Commenting on its own results Tuesday, Sherwin-Williams described “strong demand” for paint.