Sales of newly-constructed, cookie cutter, Hardie board boxes rose sharply in America last month, volatile government data released on Friday showed.
Economists were looking for a small uptick from the new home sales figures. Instead, they got a double-digit jump, made all the more notable by a meaningful upward revision to the prior month’s pace.
At 739,000, the annualized pace was the briskest since May of 2023, and represented a 10.6% increase from June’s upwardly-revised rate.
As the figure shows, the month-to-month increase was the sharpest since August of 2022. Every region showed a gain and the headline pace exceeded every estimate.
The numbers square pretty well with anecdotes from builders and also with elevated supply. Recall that the latest NAHB survey suggested price cuts are the most pervasive of 2024 and the use of incentives the most prevalent in half a decade. Between that, lower rates and plenty of newly-built (if certainly not resale) inventory to choose from, sales were robust.
Note that inventories slipped to the lowest in seven months in July as buyers took the plunge.
Still — and as the figure above illustrates rather poignantly — there’s a lot to clear. Indeed, on a long lookback, July’s decline barely shows up (especially once I covered it with an orange annotation).
Prices rose in July from June, but do note: The rather glaring disparity between abundant new homes and scarce resale properties has flipped the script. The median new home price is basically the same as the median price for existing homes, at around $430,000. While existing home prices have risen on a YoY basis for 13 straight months, prices for new homes have fallen (versus last year) every month since February.
Friday’s data — the last of this week’s US macro releases — came on the heels of NAR figures which showed sales of previously owned homes managed to increase in July, even as the pace remained hopelessly tepid.
With mortgage rates now 150bps off last year’s highs, and perhaps set to fall further as the Fed cuts and bond yields move lower commensurate with decelerating economic activity, housing market observers are becoming incrementally optimistic. As I put it earlier this week, employing a cliché, it’s always darkest before the dawn. The problem in this context is that every housing market dawn since 2022 has proven to be false.
I still have the sense that we are in an existing housing price bubble.
There is no way that my condo, which I purchased in 2020 and which currently shows a Z-estimate that indicates the value has doubled since I purchased it, will continue to show such a high Z-estimate over the next few years as existing home supply increases to meet demand. In fact, I expect the Z-estimate to decrease over the next 5 years.
I am not that delusional to think the value of my home doubled in a market where the number of sellers is so out of whack with the number of buyers.
Yeah, I’ve never personally witnessed an environment where prices were as disconnected as they are currently from the kind of — you know — “What do you reckon that’s worth?” eyeball assessment. In some locales, there’s virtually no connection whatsoever between prices and what you’d rationally expect to pay for a given property based on the eye test.
First inventories need to go up. My own take is that prices will flait line over the next 5 years. With inflation at 2-3% and rates down real prices and payments will come back onto line. The exception will be the really bubbly markets like Austin, Boise, sarasota etc. Those places will see actual price declines. NYC and SF not so much since their relative prices and most cases actual prices have already corrected. Low correlations are actually a sign of markets functioning decently.
Squinting, through my G&T, at a chart of mortgage rates vs median house price vs Case Schiller index, it looks like if you expect mortgage rates to decline significantly over a period, you should probably expect, as a first approximation, for prices to go up. Unless you are in the GFC. So if we believe rates are going down, and want to figure out if existing house prices will go down or up, we probably need to decide if we’re entering a GFC-like period. I don’t think we are, but would value counterpoints.