It finally happened. The US housing market finally cracked.
New home sales plunged an astounding 16.6% in April, government data out Tuesday showed.
There’s no use calling it a “miss,” The 591,000 annual rate (figure below) simply wasn’t comparable to estimates. The lowest forecast from five-dozen economists was 700,000.
The data included revisions back to 2017.
Last month’s pace was just barely higher than that witnessed in April of 2020, the pandemic nadir. With the revisions, it marked the second consecutive double-digit monthly drop and the fourth consecutive decline overall.
Notably, April’s decline was the seventh-largest in history in data back to 1963 (figure below).
Sales fell sharply in every region, including a near 20% drop in the South.
The figures came after a week that featured a bevy of disappointing data, including slower housings starts, a fifth straight decline in homebuilder sentiment, an 11% decline in mortgage applications and a third consecutive drop in existing home sales.
Plainly, the surge in mortgage rates is catching up to the market. And with prices still elevated and would-be buyers squeezed by soaring food and energy costs, the outlook is bleak.
Read more:
Mr. Powell, Tear Down This Housing Bubble!
Existing Home Sales Drop Again. More Declines Called ‘Imminent’
There was no relief on prices for buyers in April. Median new home prices rose 19.6% YoY last month, reaching another record in the process. At $450,600, the median price was up more than $15,000 in just 30 days.
The average price accelerated an astounding $47,800 in just four weeks, to a new record at $570,300. Prices rose on a 90 degree angle last month (figure on the left, below).
The MoM percentage gain, at 9.1%, was the largest since October 2014. Although not particularly relevant given inflation, the dollar increase was the second largest in history.
At 9, months’ supply rose 30.4% in April. Measured in months (i.e., the net change from March), supply rose by the second most ever (figure on the right, above).
I don’t see much utility in scouring the thesaurus for euphemisms. This is the top.
While new home sales represent just a fraction of the overall market, sales just plunged and the only thing rising more rapidly than the price of new homes is the cost of financing them.
Yay! It’s about time.
Doesn’t shine a very positive light on the value of economists. They really should stick to economic analysis rather than prediction.
percentage of homes with price cuts is pushing 20%. When the locked in low rate mortgages are all gone there will be collapse.
I’ve lived in my small subdivision for 13 years and the developer has finally started to build as many homes as he can this year. Right as new home sales begin to decline he will be trying to unload seven new half-million dollar medium quality houses twelve feet apart. I hope he has a patient lender.
There are smiles all ’round at the Fed . . . demand is contracting, asset prices sinking . . . UST yields are going down, which might not be the plan but could ease worries about QT.
Maybe not the time just yet, but I think investors should have contingency plans in case demand destruction and inflation easing comes sooner than consensus seems to expect. Right now consensus has a recession starting in 2023 and Fed starting to reverse its rate hikes rates sometime in 2023. I think that we need to be prepared for that timeline should be pulled in. I am not any kind of market prognosticator, but have circled (in pencil!) late summer/early fall on my calendar.
Between the run up in prices over the last year and a half, and now the run up in rates in the last few months, there’s been a ton of would-be buyers who have simply been priced out of buying a home. You’d think that as prices come back down to earth, those would-be buyers would provide some kind of floor to the housing market, yes?
I’m still getting robo texts to buy my house for all cash (my house isn’t for sale)… investors don’t seem to be scared off yet.
H-Man, another manifestation of rising rates exposing the weak links in the chain of our economic pillar. No further solace in looking at your Zillow value on-line.
Would-be home buyers, who now cannot afford to buy, must continue to rent. This keeps rental demand robust. Investors with a low cost of capital (there must be some) can continue to invest in real estate, continuing the conversion of former owner-occupied homes to rental units. This keeps the supply of homes available to purchase low, putting a floor on any price declines. With other assets subject to decreased real rates of return (due to inflation), or outright price declines (equities), real estate could continue to look attractive as an income stream and as an inflation hedge. No, I’m not a realtor.
I don’t see a clear mechanism for Fed to suppress overall demand for housing, since it seems pretty inelastic. Seems like raising mortgage rates will shift demand from buying to renting. Institutional investors have lower cost of capital. QT of MBS may advantage institutional cost vs mortgage cost. I-buyers and build-to-rent streamline the acquisition of rental houses for the SFR investors. The SFR and multifamily REITs are reporting very good rent growth, occupancy, and NOI growth. Purchase cap rates are thin, but a couple years of +12% rent growth helps that.