New US home sales exploded higher in May, underscoring the bifurcated character of America’s hopelessly distorted housing market.
Sales rose more than 12% last month, data released on Tuesday showed. Consensus expected a 1.2% decline.
The 763,000 annual rate was the strongest since February of 2022, the month before the Fed embarked on the most aggressive rate-hiking campaign in a generation.
Most economists were nowhere in the ballpark. The median guess from more than 50 forecasters was 675,000. The highest estimate was 779,000, so at least one glorified meteorologist is paying attention.
This was the furthest thing from surprising. An elderly mole could spot the trend in US housing. There’s no resale inventory. Virtually all demand has to be met by new construction, which explains why US homebuilders are the only group of stocks on Earth which’ve managed to keep pace with big-cap US tech shares in 2023. And it’s buying season.
The usual caveat applies: The dataset is very volatile, arguably to the point of being unreliable. And it captures just a fraction of overall US buying activity. But then again, Americans are being herded into new construction, so perhaps these are the figures we should be watching. The number of new houses for sale in May dropped nearly 1% from April, and months’ supply fell sharply, from 7.6 to 6.7. Builders are trying to keep up, but they’re shouldering a larger share of the burden.
Median prices rose from April, but fell again versus the same period a year ago. At $416,300, prices were 7.6% lower compared to May of 2022. It was the second consecutive meaningful YoY decline.
The average price was $487,300. Notably, April’s median price was revised lower to $402,400. Median new home prices haven’t been below $400,000 since June of 2021.
As is abundantly clear from the chart, prices aren’t going back to pre-pandemic levels. If they did, it’d constitute a veritable collapse, with dire consequences for countless Americans who bought near the top.
The figures were released an hour after an update on the Case-Shiller and FHFA national gauges, which showed prices rose broadly in April from March. New home sales in the US are on track for 611,000 this year compared to 2022’s 641,000.
Prices in nominal terms won’t go back to prepandemic prices. But in real terms they might. If so affordability will come back, especially when mortgage rates revert part way back. That is a mulit year process, like at the end of trump’s second term (kidding) or when his home confinement ends.
If new house prices don’t drop, then existing house prices won’t drop – much. Maybe somewhat, to reflect an existing house doesn’t have a seller able to “buy down” the buyer’s mortgage rate. OER won’t drop much. Rent inflation is settling in at positive MSD%. The Fed’s hope for housing deflation to bring down core PCE is less likely to come true.
I’m glad to see this dynamic take shape. New supply is the best way to bring balance to the market over the longer term. The only issue is whether housing is being built in the optimal long-term locales. I have to imagine more people will reconsider living in the south or southwest when they are being baked by weeks long triple-digit heatwaves or drenched by torrential rains. I wouldn’t be surprised to see some reverse migration back into the rust belt and the midwest starting in the next decade.
For two months I have been watching so-called neighborhood chatboards for the biggest county in the KC metro and the complaining about huge upward reassessments for coming taxes is astonishing. Even the KC mayor saw his YoY assessment go up over 70%. Strangely, I have a newer home and I just got my second downward re-assessment. The rise in taxes in our counties will affect at least some prospective buyers and sellers.
“As is abundantly clear from the chart, prices aren’t going back to pre-pandemic levels.”
I’d suggest, it’s too early to make this call. The end of the pricing chart with declines over the past 12 or so months is all happening while the economy is strong (record low unemployment, strong consumption, etc) The last 12 months indicated 1 of 2 scenarios:
1- An over heated market gently resetting in what will likely take a decade plus for incomes to catch-up to housing prices from an affordability perspective.
2- The canary signaling well before the actual event.
If we haven’t seen the “event” yet, the pre-pandemic pricing would be in play if the “event” happens. Housing (un)affordability wasn’t good pre-pandemic, now it’s 90%+ historically.
Current conditions are as confused as I have ever seen, but they do have a lot of commonalities to 2006-2009, the last time we had a reset in residential real estate. Everyone was certain everything was fine. “Limitation on supply would always keep prices afloat.” That was the narrative even through much of 2008. Turns out that didn’t hold. It’s really about household formation and so far in 2023 households have started to contract, per FRED data peaked in Dec 2022. And last point, household contraction is not a sign of a gentle reset.
Maybe this time will be different.
Here’s a POTENTIAL source of supply in some markets.
https://www.msn.com/en-us/money/realestate/airbnb-revenue-collapse-sparks-housing-market-crash-fears/ar-AA1d9eGz?ocid=entnewsntp&pc=U531&cvid=760b3f2727bc4bda83ac51ca4c8fa1f8&ei=91