New home sales continue rangebound, prices continue to decline, inventory continues to rise

 - by New Deal democrat

This morning’s report on new home sales for June indicated that sales continue to be rangebound, YoY prices continue to decline, and inventory of homes for sale continue to rise. This complicates the story of rebalancing between new and existing homes.

To recapitulate, while new home sales are the most leading measure of the housing market, they are very noisy and heavily revised, which is why I generally pay more attention to single family permits. Still, if averaged over three or more months they are valuable indicators of the underlying upward or downward pressure on the economy going forward one year or more. 

Let me begin also with a periodic reminder that sales lead prices:

As well as leading inventory:

Here is the YoY% change post-pandemic of all three:

As per history, sales rose first, followed by prices and inventory. Sales then abated, and median prices have since turned down, although inventory has not yet done so.

Turning to each metric in order …. 

With mortgage rates remaining in the 6%-7% range, sales of both new and existing homes have also been rangebound for over two years. In June, new home sales rose 4,000 to 627,000, near the bottom of that range: 

Over the same 2+ year period of time, prices also stalled, and then began a very slow deflation on the order of -1% -5% YoY. In absolute terms that trend continued last month, as the median price of a new single family home declined -$20,900 to $401,800 (gold, right scale in the graph below. Note that this metric is not seasonally adjusted, so the YoY% change is also shown (magenta, left scale):

Since 2019, the median price of existing homes has increased substantially more than that of new homes. For a rebalancing to occur, these should start to converge. Since YoY prices of new homes continue to decline, while that of existing homes continues to increase, albeit at a lower pace, per yesterday’s 2.0% YoY increase, that is not happening yet.

Finally, after a slight decline in April, the inventory of homes for sale has risen in both of the last two months, and in June rose 6,000 to 511,000, another post-pandemic high:

This is significant because as indicated in the second from top graph above, in the past recessions have happened after not just sales decline, but the inventory of new homes for sale (red, right scale) - which also consistently lag - also decline (as builders pull back.

The June report suggests that rebalancing of the market has quite a way yet to go, as prices continue to diverge, with new home inventory also well ahead of the increases in the inventory of existing homes. Further, this report was not recessionary as sales continued rangebound and inventory has not turned down.