Existing home sales in the US continue to be constrained by a lack of resale inventory, but figures for May, released on Thursday, nevertheless managed to top estimates.
Sales rose slightly to a 4.3 million annual rate, snapping a two-month streak of declines. Thanks to an acute supply shortage and affordability constraints, sales fell in 14 of 15 months through April. On a YoY basis, sales fell 20.4% last month.
May’s pace counted as fairly anemic, even as NAR Chief Economist Lawrence Yun described sales as “relatively steady” and “consistent.”
Total inventory at the end of last month was 1.08 million units. That was up nearly 4% from April, but down 6% YoY. Last month’s inventory counted as the lowest for any May in figures going back nearly a quarter century.
Months’ supply was 3. That’s still indicative of a very tight market. The average property lasted 18 days in May. Three-quarters of listings sold in less than a month, the NAR said.
This is the other side of America’s bifurcated housing market. Builders have stepped into the void to meet demand. KB Home delivered solid results on Wednesday afternoon and guided ahead of consensus for the full-year, even as the margin outlook disappointed some investors. “Market dynamics are characterized by low existing home inventory and limited availability of new homes at our price points as well as demographics that are particularly favorable for our business,” CEO Jeff Mezger told analysts on the call. “With respect to demand, buyers are adjusting to higher mortgage rates [and] with the lack of resell inventory and price[s] now starting to increase, buyers are demonstrating a higher sense of urgency than we saw earlier this year.”
At the risk of being the glass half-empty guy, that doesn’t sound disinflationary to me. Rather, it sounds like FOMO in housing.
The NAR report showed the median price for existing homes dropped more than 3% YoY, the largest decline in a dozen years.
Still, at $396,000, families with limited incomes will struggle with the math. This is a $320,000, highly levered investment at 6.5%, and that’s if you have $80,000 up front. If you’re not making $150,000/year, that’s going to feel onerous.
Do note: Even as prices are lower on a YoY basis, they’re rising again from month to month. I don’t think the Fed is going to get a durable disinflation impulse from housing. Sure, there’s meaningful shelter disinflation already in the pipeline, but housing needs a real correction. Forgive me (and while readily acknowledging that declines in some Western states are indeed dramatic), but 3% doesn’t count.
“US housing demand may have collapsed, but so too has the supply of homes for sale,” ING’s James Knightley remarked. “This means prices are holding up and in some areas continue to rise, despite mortgage rates sitting at a 20-year high.”
Yun on Thursday painted a familiar picture. “Newly constructed homes are selling at a pace reminiscent of pre-pandemic times because of abundant inventory in that sector [but] existing-home sales activity is down sizably due to the current supply being roughly half the level of 2019,” he said.
What market has income levels near $150k and the average home is $320k? I live in a second tier major market, we have a lot of people with $150k+ incomes, but the average home is 4-5 times $320k, a small 2 bedroom is min $900k.
The crash in prices is coming, income levels are not able to support the current levels. I would not be surprised if the end of the student loan moratorium starts the household “formation” contraction, which will then tip all the dominoes toward more significant price contraction.
Almost 24% of the cost of new homes are regulatory fees.
If the government wanted more affordable housing, just reduce the fees.
https://www.nahb.org/-/media/NAHB/news-and-economics/docs/housing-economics-plus/special-studies/2021/special-study-government-regulation-in-the-price-of-a-new-home-may-2021.pdf
No. New homes are priced based on comparable existing homes adjusted for the fact all is new but the existing might be closer to amenities, etc. Take that price, deduct costs of the home, lot services and all those taxes, and what is left is the price of the raw land. Reduce those taxes and almost all goes to the owner of the raw land.
Correct. A builder is currently making sufficient profit to justify building, then lowering costs does not incentivize the builder to construct affordable housing, it merely increases builder profits for market-rate housing. Which the NAHB would like, obviously, so it pushes this “lower fees/costs and we’ll build you affordable housing” line.
My state is deep into this NAHB belief system, lubricated with developer political contributions, and has been furiously cutting fees and liberalizing zoning. Yet affordable housing is only being built by the existing affordable housing developers with government (taxpayer) money. The market rate developers are building the same non-affordable housing that they were before, just making more money at it, and land values have also jumped.
Without a significant economic downturn in the US I don’t see a major decline YoY in housing prices, supply of existing homes will remain constrained for as long as mortgage rates remain at current levels, we have a good old fashioned supply shock right now, more buyers than sellers = prices remain high.
Are more homebuyers using ARMS as opposed to fixed mortgages to deal with high rates? It would, at least temporarily, solve one of the two issues (rates, the other being prices) facing buyers to lower monthly costs.