No people, there is no “housing shortage”. There is a supply of more than 9 months, the highest level since the housing crisis. But the prices are still very high.
Written by Wolf Richter for WOLF STREET.
The median price of new single-family homes sold in June fell 9.5% from May, to $402,400, the lowest level since June last year, according to the Census Bureau today. A dip in June after a dip in May cut annual gains to 7.4% from 20%+ in the spring.
Average prices are noisy with month-to-month moves, and some caution should be used here. But this was nonetheless an unusual decline of magnitude that had occurred only three times before in data going back to 1965: during the second regression of the double-recession (September 1981), during the housing crisis (October 2010), and in September 2014.
It’s clear that potential buyers now have other ideas, given the surge in mortgage rates, and homebuilders are responding to this drop in demand and an increase in cancellations by stacking stimulus and lowering prices:
The largest homebuilder, DR Horton, said in its earnings report last week: “The increase in our cancellation rate in the current quarter primarily reflects the moderation in demand we saw in June 2022 as mortgage interest rates rose significantly and inflationary pressures remained elevated.
Sales drop to closing level April 2020.
Sales of new single-family homes fell 8.1% from May, to a seasonally adjusted annual rate of 590,000 homes, down 17.4% from a year ago, barely above closing in April 2020, and then the lowest level since late 2018, when mortgage rates reached The magic number of 5%:
Similar declines occurred in existing home sales with sales down 14% in June from a year ago. So these are homes, condos, and pre-owned homes. Of particular note in current sales is the 21% drop in closed sales in California and the 40% collapse in pending sales.
New home sales fell in every region Compared to June last year, but fell further in the Northeast:
- Northeast: -37.9%
- West: -32.9%
- Midwest: -22.1%
- South: -8.7%.
There are no people, there is no “housing shortage”, but the prices are still very high.
Homes for sale in all phases of construction continued to pile up in a staggering series that began in August 2020 and in June reached 457,000 homes, seasonally adjusted (and 463,000 non-seasonally adjusted), the highest since May 2008, up 113,000 homes or 32% as of From June of last year:
by region, Unsold inventory rose in all regions but rose most in the Midwest and South, in terms of percentage increase year over year:
- Midwest: +62%
- South: +33%
- West: +28%
- Northeast: +4%.
The supply of unsold new homes has increased to 9.3 months of sales, as in May 2010, both of which were the highest since April 2009, during the depths of the housing crisis. This is a large amount of supply:
Prospective home buyers require sacred mortgage rates.
They’re called the “Holy Lord” because that’s always the sound potential homebuyers make when they see the payments for the home they want to buy at current mortgage rates and at very high prices.
The average 30-year fixed-rate mortgage rate, as measured by Freddie Mac, was 5.54% in the last reporting week and has been above 5% since mid-April. With each increase in mortgage rates, entire layers of potential buyers abandon the market as long as prices remain too high:
Homebuilders are struggling with the worst construction cost inflation ever.
Homebuilders faced shortages of materials, supplies, and labor that delayed projects, price hikes that led to staggering cost overruns, and overlapping deliveries of completed homes.
Construction costs for single-family homes — excluding land and other non-structural costs — are up 17% year-over-year and have remained in that range since December last year, the worst rise in construction costs ever in data going back to 1964, according to separate data. From the Census Bureau today. June marked the 14th consecutive month of double-digit rise in construction costs:
Shares of a home builder…
Despite a strong summer recovery that now appears to be having problems, homebuilders stocks are down 24%-36% year-to-date and have easily fallen below the S&P 500 (-18% YTD) ):
- Horton: -31%
- Linar: -31%
- Bolt Group: -24%
- NVR: -26%
- Taylor Morrison: -23%
- Merit: -30%
- KB main: -30%
- Horn: -36%
- LG homes: -33%
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