New home sales unexpectedly fell last month, the first of this week’s notable data out of the world’s largest economy showed.
The 662,000 annual rate was well short of the 677,000 consensus. The prior four months were revised slightly higher.
February’s pace marked a 0.3% decline versus the 2.3% gain economists expected. It was the first monthly drop since November.
This is a government release. And, as a reminder, it’s volatile.
For the better part of two years, new construction was the only game in town for buyers not squeezed out of the market by the onerous combination of record prices and the highest financing costs in decades. Resale supply was nonexistent with many American homeowners shackled in so-called “golden handcuffs.”
The small decline in new home sales came during a month when sales of existing properties surged 9.5%, suggesting, perhaps, that the market’s starting to thaw. Builder sentiment’s back above a key threshold separating net pessimism from optimism and generally speaking, housing market watchers are cautiously upbeat about 2024.
Notably, the median new home price in February was “just” $400,500, the lowest since June of 2021.
Median prices have now fallen on a YoY basis for 10 of the last 11 months. February’s decline from the same month a year ago was 7.57%. Average prices, meanwhile, remain near half a million.
Note that the high for median prices was $496,800 in October of 2022. So, ostensibly anyway, the median buyer’s getting a very large discount versus the peak. But as the simple chart shows, prices are still ~60% above where they stood a decade ago. That’s not sustainable from a societal perspective, an assessment backed up by worsening homelessness.
Fortunately in that regard, the trajectory of existing home prices has now normalized, or at least according to the latest update on Redfin’s gauge. Prices rose 0.6% last month from January, consistent with the average MoM increase observed in the eight years prior to the pandemic.
Supply’s starting to normalize too. In the four weeks to March 17, the total number of houses for sale in the US rose 5%, the most in 10 months, while new listings jumped 15%, which Redfin’s Dana Anderson noted was the largest increase since June of 2021.
Prices probably won’t crater, but on average around the country, I expect housing prices to lag nominal GDP- perhaps even inflation. This will be a relief for home buyers eventually. If/when the FOMC eventually starts cutting rates there will be more relief for buyers with more inventory to choose from. Nationally inventory is still tight, but over the next few years that will probably normalize as well.
New houses are getting smaller, peak in mid 2010s was 2450 sf, pre-pandemic was 2300 sf, now 2180 sf. They are also getting more stripped down, lots smaller, etc as builders try to cut costs.
Price/sf has thus declined less than price.
Of course, the reported median price doesn’t include rate buydown.