- by New Deal democrat
Now that we have new as well as existing home sales, let’s take a little more extended look at the housing sector.
Let me start by reiterating the big picture: mortgage rates lead sales, which in turn lead prices. Further, new home sales are the most leading of all housing metrics, but they are noisy and heavily revised. The much less noisy single family permits lag them slightly. Finally, we are looking for relative normalization between the new and existing home sectors, which would mean *relatively* more existing vs. new home sales, firming in new home vs. existing home prices, and more inventory growth in existing homes vs. new homes.
Only the third of these made progress in June.
Three months ago I wrote that “because mortgage rates have risen somewhat in the past few months (from 6.67% to 7.10%, I expect this range in new home sales to continue, with a slight downward bias in the immediate months ahead.” That is what has happened in the three months since. Mortgage rates (red in the graph below, right scale) remain elevated (over 7% on average in May) compared with earlier this year, so downward pressure has been placed on new home sales:
Specifically, in June new home sales declined another -4,000 to 617,000 annualized, with only a slight revision to May. This is on par with new home sales late last year when rates were also above 7%.
As expected, the much less noisy, but slightly less leading single family housing permits (red, right scale), have turned down with a slight delay as well:
Prices (brown) continued to rise after sales declined, and have since declined themselves slightly as well (if there were more combined new and existing home inventory, we would expect a steeper decline in prices):
On a YoY basis (red), in June the median price for a new home was almost exactly unchanged (down -0.1%):
But the slight downward trend over the past 12+ months remains intact.
Finally, inventory always lags sales, and this continued to climb to its highest all-time level except for the peak of the 2000s housing bubble:
For comparison, yesterday we saw that sales of existing homes remained near their 5 year lows, while inventory (not seasonally adjusted) rose to a three year high, and prices continued to rise YoY, but at a slower pace. Here is the graph of existing home inventories (not seasonally adjusted) for comparison:
Mortgage rates over 7% have thus continued to be an obstacle to normalization. Sales of both new and existing homes remain near five year lows. Prices of existing homes continue to rise faster than for new homes. Inventory for both new and existing homes is increasing, but the latter is increasing - from an extremely low post-pandemic level in 2022 - faster than the former, 23.3% vs. 11.2% YoY.
To sum up, there is still a long way to go on the journey to a normal housing market. I expect existing home inventory to continue to rise sharply until prices stop rising faster than prices for new homes. Meanwhile sales for both will continue their existing flat to slowly decreasing trend until mortgage rates are significantly lower.
