June 27, 2024 Housing Market News

Welcome to our comprehensive coverage of today’s real estate market, where we delve into the latest trends and data affecting home buyers and builders across the United States. From unexpected plunges in new home sales to persistent high mortgage rates that challenge affordability, our reports offer in-depth analysis on the dynamics shaping the housing landscape. Whether you’re a potential buyer, a real estate professional, or simply keen on understanding the current market conditions, our articles provide valuable insights into why new homes are selling below their usual rates, how elevated interest rates are impacting both buyers and builders, and what this means for the overall economy. Stay informed with our detailed examinations of these critical issues.

US new home sales plunged unexpectedly last month | CNN Business

Sales of newly built homes dropped last month as mortgage rates remained elevated. New home sales, which make up only about 10% of the market, fell 11.3% in May from the prior month, to 619,000, according to government data released Wednesday. That was the steepest monthly decline since September 2022 and marks the lowest level since November.

High interest rates, and expectations that they’ll remain elevated for longer than expected, are weighing on America’s homebuilders. US homebuilder sentiment soured in May for the second month in a row, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index out last week.

That’s also taking a toll on the construction of new US homes. Housing starts fell 5.5% last month to a seasonally adjusted annual rate of 1.28 million units, the lowest level since 2020, also registering well below economists’ expectations. Building permits, seen as a bellwether of future construction, dipped 3.8%.

“Persistently high mortgage rates are keeping many prospective buyers on the sidelines,” NAHB chairman Carl Harris said in a release. “Home builders are also dealing with higher rates for construction and development loans, chronic labor shortages and a dearth of buildable lots.”

The US housing market has for decades grappled with a chronic lack of homes available for sale, which has put some upward pressure on home prices.

High prices and elevated mortgage rates, coupled with the persistent housing shortage, have undermined this year’s critical spring homebuying season. US home prices rose in May for the eleventh consecutive month to $419,300, a record high on data going back to 1999, the National Association of Realtors said last week.

While that means Americans are stuck dealing with low housing affordability, it’s also proving to be a headache for the Fed: Inflation overall has eased substantially since reaching a four-decade high two years ago, but shelter costs have remained stubbornly elevated. It is effectively making the final stretch of the Fed’s inflation battle more difficult. Fed officials, including Fed chief Jerome Powell, have said that it’s only a matter of time until declining rents show up in official government measures of inflation. Renters are very much still struggling in today’s tough US housing market.

The Biden administration has laid out its own solutions to the country’s housing crisis. Treasury Secretary Janet Yellen on Monday announced $100 million in funding over the next three years “to support the financing of affordable housing,” according to a release. On Wednesday, Vice President Kamala Harris and Housing and Urban Development Acting Secretary Adrianne Todman announced $85 million in grant funding toward a housing program that “aims to identify and remove barriers to affordable housing production and preservation, and lower housing costs.”

“Housing costs are a particular pain point for American households,” Lael Brainard, director of the White House’s National Economic Council, said last week at an event in Washington.

Brainard touted the Biden administration’s cap on annual rent increases for the 2 million households in “low-income housing tax credit” units and a reduction in Federal Housing Administration mortgage insurance premiums that took effect in the spring, which she said has helped nearly 700,000 homeowners save roughly $900 annually.

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Higher Rates Continue to Sideline Home Buyers | NAHB

Mortgage rates that averaged 7.06% in May per Freddie Mac, the highest monthly average since last November, put a damper on new home sales last month.

Sales of newly built, single-family homes in May fell 11.3% to a 619,000 seasonally adjusted annual rate from a sharp upwardly revised reading in April, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in May is down 16.5% from a year earlier and is the lowest pace since November 2023.

“Persistently high mortgage rates in May kept many prospective buyers on the sidelines,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, Kan. “However, significant unmet demand exists, and we expect mortgage rates to moderate in the coming months, which will bring more buyers into the market.”

“While new home inventory increased to a 9.3 months’ supply, due to a lack of resale homes for sale, the combined inventory for new and existing single-family homes remains lean at a 4.4 months’ supply according to NAHB estimates,” said NAHB Chief Economist Robert Dietz.

A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the May reading of 619,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in May remained elevated at a level of 481,000, up 12.9% compared to a year earlier. This represents an 9.3 months’ supply at the current building pace, which has been supported by the ongoing shortage of resale homes.

Due to declines in new home size and some builder use of incentives, the median new home price fell to $417,400, down almost 1% from a year ago.

Regionally, on a year-to-date basis, new home sales are up 6.0% in the Northeast, 25.2% in the Midwest and 6.3% in the West. New home sales are down 7.6% in the South.

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New home sales plummet, but prices barely budge

May sales were well below April numbers and down 16.5% year-over-year, a sign that builder incentives may not be enough to overcome high rates and prices. New home sales slowed considerably in May, even as builders continue to offer incentives — a sign that affordability is weighing heavily on potential buyers.

Sales of new homes were at a seasonally adjusted annual rate of 619,000 in May, according to the U.S. Census Bureau. That’s down 11.3% compared to April and down 16.5% from a year ago.

The slowdown in sales pushed the monthly supply of new homes to 9.3 months, up significantly from 8.1 months in April and well above the 4-6 month level that is typically considered a balanced market. The all-time high for new home supply was 12.2 months in January 2009.

When existing homes are added into the mix, the supply remains a lean 4.4 months, according to the National Association of Home Builders.

While new construction has remained a relative bright spot in the housing market, largely due to the availability of builder incentives, high home prices and elevated interest rates continue to take a toll, said Bright MLS Chief Economist Lisa Sturtevant.

“Homebuilders had been enticing buyers with rate buydowns and other concessions, but for some homebuyers, those financial incentives are no longer enough to get them on the building lot,” said Sturtevant.

Odeta Kushi, chief economist at First American, echoed that assessment, noting that overall supply and affordability issues remain barriers.

“The housing market remains structurally undersupplied and there are plenty of potential buyers waiting on the sidelines, as long as the payment-to-paycheck calculation pencils out,” Kushi said.

That payment calculation is looking bleak these days, especially for first-time homebuyers. Only 29% of first-time buyers could afford homes for sale nationally in the first quarter, down from 34% a year ago, according to First American’s outlook report.

The report found that among major markets, only Memphis, Tennessee, was relatively accessible for first-time buyers, with 55% of homes considered affordable for the median renter. A handful of other markets were somewhat affordable, including Cleveland, with 49% of homes considered affordable, Louisville (47%) and Pittsburgh (45%).

The least affordable markets were all in California, with Los Angeles topping the list with only 1% of homes affordable to the median renter. It was followed by San Diego (2%), San Francisco and San Jose (both at 3%).

The law of supply and demand would suggest that more new homes for sale would mean lower prices. While increasing supply has given a little more leverage to new home buyers, it hasn’t significantly impacted sale prices. The median sales price for new homes sold in May was $417,400, down only slightly from $417,900 in April. A year ago, the median price was $421,200, but dipped to $417,600 in June 2023.

Even though new home prices have declined modestly, that’s not necessarily because builders are cutting prices — instead, builders are constructing smaller homes, said Robert Dietz, chief economist at NAHB.

With more existing homes staying on the market, it’s expected that the third quarter will be slower than last year for new home sales, said Sturtevant. That slowdown appears to be affecting builder optimism, with the latest NAHB Housing Market Index finding that builder sentiment dipped again in June after falling sharply in May.

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New Homes Cost Less Than Used Ones, and That’s Not Normal

If you’re in the market for a single-family house and want to save a few bucks, you might want to try building a new one from scratch instead of buying an existing one. The median price for a newly built single-family house sold in May was $417,400 according to the Census Bureau, while the median single-family existing homes sold for $424,500, data from the National Association of Realtors showed. Existing homes costing more than new builds is a rare occurrence—it’s only happened in 14 months since 1968, most recently in 2021, and only twice since 1982.

To be sure, the numbers aren’t 100% comparable—they’re gathered using different methodologies—but they do illustrate a trend. New home prices have fallen since peaking at a median $460,000 in October 2022, possibly because builders have tried to build smaller, cheaper houses that buyers can afford amid mortgage rates close to their highest in decades.

Meanwhile, existing home prices have been pushed to record highs as high mortgage rates have discouraged sellers from putting their houses on the market, restricting for-sale listings and keeping competition fierce. The fact that new homes are cheaper than used ones serves as “a sign of how contorted the housing market is,” Robert Frick, corporate economist with Navy Federal Credit Union, wrote in a commentary.

Update, June 27, 2024— This story has been updated to further clarify that the prices given for existing and newly-built homes are for single-family units.

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