Sales of new US homes plunged in May, according to what I can confidently call wholly unreliable data released on Wednesday.
These figures are so volatile as to be essentially useless other than as a kind of ballpark estimate.
For example, sales fell 4.7% in April as initially reported, but after a sharp upward revision in Wednesday’s release, that month now shows a 2% gain from March’s pace, which was itself revised materially higher. February’s headline rate was revised up too, and you’ll note that this series was subjected to heavy historical revisions in the last update.
Whatever the case, sales plunged more than 11% last month, the initial read for May suggested.
If it stands, that’d be the largest decline since September of 2022.
A big drop would be consistent with the notion that high rates and even higher prices are sidelining more buyers. Existing home sales fell a third month in May (and a 23rd in 28), according to the NAR, and inventories are trying to normalize even as elevated financing costs continue to crimp supply courtesy of the so-called “golden handcuff” effect.
Anecdotally anyway, buyers fortunate enough to still be in the market are securing concessions, both from sellers and builders. Home builder sentiment slipped to its worst levels of the year this month, when the NAHB’s gauge loitered well below the threshold separating net optimism from pessimism. Relatedly, housing starts fell to a four-year low and permits likewise disappointed.
The median new home price in May was $417,400, down on both a MoM and YoY basis.
If you go by that figure (which’ll surely be revised), the median new home in America was less expensive than the median used home sold in May.
The average price remained above $500,000 for a fifth month. That’s the arithmetic mean, obviously, but in a colloquial (i.e., non-mathematical) sense, the “average” American can’t afford to (and shouldn’t be required to) finance half a million dollars at 7%. And yadda, yadda. You know my spiel on this.
Earlier Wednesday, the MBA said mortgage rates fell to “just” 6.93% over the last week. 10-year US yields are some 50bps off the YTD highs. That’s providing some relief to stretched buyers.
“Lower rates, however, were still not enough to entice refinance borrowers back,” MBA VP Joel Kan said. “Most continue to hold mortgages with considerably lower rates.”
Marketwatch just ran a housing-related story:
“Rising numbers of Americans are making emergency “hardship withdrawals” from their 401(k) plans to avoid eviction or foreclosure, new data reveal.
The data, from investment and retirement giant Vanguard, raise new fears about the looming retirement crisis facing millions—and about just how widespread the current “economic boom” really is.
The number of hardship withdrawals per 1,000 savers soared about 40% last year and have doubled since 2021, Vanguard reports.
And the main reason people were raiding their retirement accounts was to avoid losing their home. “In 2023, 39% of hardship withdrawals were used to avoid a home foreclosure or eviction, up from 31% of withdrawals two years earlier,” Vanguard reports.”
The data might be in the article, but is that partially a function of pandemic era policies around mortgage forbearance options creating an artificially low baseline? How do the numbers compare to a pre-pandemic baseline? I wonder if there is also an impact from people who don’t want to refinance and would rather take the hit from their retirement account than use refinancing to cash out equity gains from the past few years.
I did the math on housing affordability the other day. Used a middle class home defined as 3 BR, 2 BT 1800 sq ft.
In the northeast, in a rural community that home would cost near the national average of $500k. It would cost $2.6k/mo to own. Using the standard 30% allocation to housing as the definition of being able to comfortably afford the house, the required income would be $104k/yr or top 25% national income. However, in these rural communities, there a very few incomes that high, in fact it’s over double the average in the area.
In the urban cities, where I live, that same home would cost $8.3k/mo to own requiring an income of $332k/yr to comfortably afford it, a top 5% income. It takes a top 5% income to be middle class right now.
There is a zero percent chance this won’t end in a massive economic collapse eventually. Until then, it’s the roaring 20’s!!!! History is rhyming all over.
I believe these are “normal ” mortgage rates right now. I have an idea how to fix the shortage of sellers. It will spark outrage but it should create a lot of supply..A three year bill that would eliminate capital gains on the sale of your primary residence… I realize this will be grossly unfair, but it could cause many houses to change hands. Even better, couple it with immigration allowances for skilled workers in the building trades…