A day on from another lackluster read on existing home sales in the US, government data suggested new home sales were similarly moribund in June.
At 617,000, the annual rate came in well short of the 640,000 consensus expected, marking a second consecutive monthly decline.
Recall that sales plummeted in May. Consensus expected a decent rebound but… well, no dice.
New construction still has a number of things going for it, not least of which is the dearth of resale inventory. Tuesday’s NAR update suggested inventories of existing properties continued to improve (i.e., expand) last month, but there’s still a generalized shortage, and that’s a void new construction can fill.
The problem is that builders (never mind buyers) are just exhausted with 7-handle (or near 7-handle) rates. Home builder sentiment slipped to the worst levels of the year this month, and although overall housing starts rebounded from a four-year low in the latest release, single-family starts (and permits for that matter) fell.
The MBA on Wednesday said the 30-year fixed edged lower for a third week (and a sixth in seven), but at 6.82%, it’s still too high to thaw the market.
“Refinance applications were up [and] the conventional refi index was at its highest level since September 2022 [but] purchase applications decreased as ongoing affordability challenges persist with rates at their current levels and with home-price appreciation still strong in many markets,” MBA VP Joel Kan said.
The government’s new home sales data showed the median price rose to $417,300 in June, flat YoY, but the highest since March. That’s about $10,000 below the median existing home price if you’re keeping track at — err — home. The average price was $487,200, the lowest since January of 2023.
According to a new Redfin report, buyers balked on 56,000 deals in June, equivalent to around 15% of all homes that went under contract that month. As Lily Katz noted, that was “the highest percentage of any June on record.” Buyers, she went on, “are skittish due to elevated mortgage rates and record-high home prices.”
The same data suggested one in five homes sold last month had a price cut. That too was an all-time June high.
Mortgage rates are too high. First, the basis between US Treasury bonds and mortgage rates blew out. That accounts for about 100-150 bps on mortgage rates. Now you are in the range of 5.5%. FOMC target rates probably add another 100-150 bps, in other words real rates are too high in the short to intermediate US Treasury curve. The housing market would look much different if mortgage rates were at between 4%-4.75% which is my estimate of where 30 yr fixed rates should be. Other rates to small businesses and consumers are also far too high. If you are a large corporation, US Treasury, or large entity you are not suffering nearly as much.
So if you are a small player rates are way too high. If you are large they are high but not that onerous.
The housing shortage could be lessened if municipalities cut impact fees, expand tax credits for low income housing and change zoning regulations.
H: why would refi index still be high if we’re still close to a 7 handle on mortgage rates?
Because some people financed at even higher rates.