New home sales were lower than expected on the day, but were revised positive for the third straight month, continuing the story of builders grappling with an environment of rising mortgage rates.But what they still have is 76,000 We are selling the completed unit today.
that’s right. Despite all the hype about a huge amount of housing inventory coming from builders, we sit here today still trying to get back to pre-COVID levels. 76,000 The completed home is ready to move into.
As shown in the graph below, this sector has never offered many vacant properties for sale. Even during the worst months of the housing bubble burst, builders consistently sold fewer than 200,000 completed units.
Builders sell homes as a commodity, and a huge spike in monthly supply last year forced them to make deals to move their products. This is why I called them efficient home sellers. However, rising mortgage rates are making some of these deals increasingly difficult to execute.I talked about this in Interview with CNBC on tuesday.
Let’s look at other aspects of the report.
from census: Newly built home sales New single-family home sales in August 2023 were at a seasonally adjusted annual rate of 675,000, according to estimates jointly released today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.7 per cent (±15.6 per cent)* lower than the revised July figure of 739,000, but 5.8 per cent (±21.1 per cent)* higher than the August 2022 forecast of 638,000.
Positive revisions to the data mean new home sales continue to slowly rise, with some easy-to-win properties showing good year-over-year sales growth. As you can see from the graph below, sales levels are not growing as rapidly as they were from 2002 to 2005. As I emphasized, there are no high hurdles to overcome in order to grow. Last year’s sales were not historically high.
From the census: Inventory for sale and several months’ worth of inventory:As of the end of August, the number of newly built homes sold (seasonally adjusted) was 436,000. This equates to his 7.8 months’ supply at current sales rates.
My model for understanding builders is:
- At the time of supply 4.3 months Below, this is a great market for builders.
- At the time of supply 4.4-6.4 Month, this is an OK market for builders. As long as sales of new homes are growing, more homes will be built.
- Once the supply is finished 6.5 months, Builders will pause construction.
It’s now 7.8 months, but housing starts didn’t increase significantly last week, with most of that coming from multifamily construction.
Below, we see that the number of permits for single-family homes is increasing as the monthly supply of new homes has declined from its recent peak. The question is, what will happen in the future if mortgage rates rise?
And in the graph below, you can see the monthly supply data decreasing as builders work through their backlog of homes. Still, more sales are needed to bring this level back to pre-COVID-19 levels.
Breaking down the monthly supply data looks like this:
- 1.4 Within a few months of supply, the homes will be completed and ready for sale. 76,000 houses.
- 4.5 Several months of the supply are homes still under construction. 254,000 House
- 1.9 Several months of the supply are homes that haven’t even started construction yet. 106,000 House
Overall, this report was neither great nor terrible. A positive revised value indicates that sales in the new home sales sector will be positive in 2023. There’s one thing to remember about the two different housing markets. That means that while new home sales saw a significant increase in monthly supply last year, the existing home sales market did not.
Builders are signing contracts to sell more homes, but existing homeowners aren’t feeling that pressure yet. There is still only 3.3 months of supply on the existing home market, with only 20 days left on the market. Some housing markets are feeling more pressure from rising interest rates than others, which explains why home prices are back to all-time highs today. S&P Core Logic Case Shiller Despite being a home price index, existing home sales are nearing the lowest level of demand in the 21st century.
They cannot engage builders to sell completed units because flooding the market with inventory goes against their business model. That’s why, in a country of 335 million people and more than 156 million workers, builders have only 76,000 homes available for sale.