In December, the theme for new homes was “steady as she goes” in sales, price, and inventory trends

 

 - by New Deal democrat

To reiterate my theme from the past few months, Ive been looking at new and existing home sales more in tandem, with a rebalancing of the market in mind. For that to happen we need price to abate in existing homes, to compete with new houses where prices have been slightly declining for over a year. Along with that, we should see inventory of existing homes increasing, reflecting softness in that market. This morning’s report on new home sales in December continued that metric.

As usual, let me start with the caveat that new home sales are very noisy and heavily revised, which is why I usually compare them with single family permits, which lag slightly but are much less noisy.

In December new home sales rose to 698,000 annualized, about average for the past 12 months. The below graph shows the last seven years, to put the number in wider context. Except for the surge in 2021 when we had 3% mortgage rates, the 2024 average was on par with the best levels during the long expansion prior to the pandemic:

Housing permits have also been relatively stable in 2024, and probably will remain so for a few months more.

Sales lead prices, which are best viewed in a YoY% comparison. The below graph shows sales, single family permits, and median prices of new homes in that format:

You can see that prices followed sales higher with about a 12 month lag, and settled in to a slightly declining trend with a similar delay. As shown in the graph, on a YoY basis in December, the median price of a new home was 2.1% lower than it was one year ago. But as the below graph of non-seasonally adjusted prices shows over the past several years, the slightly declining trend is intact:

Finally, the inventory of new houses made yet another 15+ year high in December. This is actually “good” news for the moment because as the below long term historical graph shows, recessions have in the past happened after not just sales decline, but the inventory of new homes for sale - which also consistently lag - also decline (as builders pull back):

In sum, December was a “steady as she goes” month for new home sales, with the recent trends in prices and inventory also continuing. Because mortgage rates increased back to 7% in the past several months, I am expecting at least a slight pullback in the next couple of months.

The other fly in the ointment to the rebalancing scenario is that, as I reported last week, sales of existing homes increased in the past several months, and perhaps more importantly, YoY price increases have been accelerating. 

In other words, while the economic news is “good,” in terms of housing being affordable for average Americans, the sector is still out coming up short.