New home sales outperformed latest forecasts national census reportsales have only fluctuated around this year’s lows, and monthly supply data shows that there is too much of a backlog of homes that builders need to build to boost their confidence.
One of the realities of COVID-19 is that it takes longer for businesses that need stable mortgage rates to build homes because it takes the traditional time to complete a home. While the global pandemic hasn’t helped builders in any way, there are still plenty of new homes under construction or yet to break ground.
Here is a breakdown of the 8.6-month supply in the report:
- 64,000 Your new home is complete and ready to sell. 1.2 months
- 290,000 The new house is still under construction. 5.5 months
- 107,000 The new house hasn’t started yet 2.0 months
So I can see why they wouldn’t issue new permits in a more significant form right away. Based on my monthly supply model, it’s too expensive for a builder.
Cancellation rates are exploding with them.home loan interest rate 3% to 7.375% this year. This sent monthly supply data skyrocketing out of control, and builder confidence plummeted. All of these new home sales reports do not take into account current cancellation rates in sales data. This means that the heading numbers displayed are incorrect.
However, even after adjusting for that, sales trends have bottomed out for some time. The truth that no one wants to talk about here is that from 2002 he didn’t have the massive sales credit boom in his 2020-2021 housing that he saw in 2005. Purchase requisition data always showed this to be the case, not just sales data. This means that new home sales data are already historically low right now.
Today, when adjusted for population, new home sales are even lower. Recall that in America the population is still growing. Recent reports From the census showing this to be the case. “According to national and state population estimates for 2022, the US resident population increased by 0.4%, or 1,256,003 people, to 333,287,557 in 2022.”
from national census: Sales of new single-family homes in November 2022 were at a seasonally adjusted annualized rate of 640,000, according to estimates jointly released today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.8% (±22.7%)* above the October revised value of 605,000, but 15.3% (±13.0%) below the November 2021 estimate of 756,000.
All corrections are negative, and we expect this trend to continue barring the recent drop in interest rates. This eliminates the problem of the housing market selling homes with mortgage rates above his 7%.
Remember, builders don’t work like existing home sellers. They treat commodities as commodities. This means they try to build it and sell it for as much money as possible, and they don’t want to see a significant backlog, which creates deflationary problems in their profit margins.
Unlike incumbent home sellers who need to find a home to live in after the sale, the new home sales market presents no such problems. Others live in a house with a mortgage rate of 3% on him and don’t want to give up. There may be certain buyers who don’t want to bother right now because they need to sell their current home to buy a new one and the fees are so high.
I think more people simply don’t have the qualifications.Cancellation rates are something builders have good data on.
Monthly new housing supply still too high
My rule of thumb for predicting builder behavior is based on a 3-month supply average. This has nothing to do with the existing home sales market.This monthly supply data applies only to the new home sales market
- If the supply is 4.3 months or less, this is an excellent market for builders.
- With a supply of 4.4 to 6.4 months, this is a fine market for builders. As long as sales of new homes are growing, they will be built.
- Builders refrain from building when supply is 6.5 months or longer.
In this report, monthly supply data was reduced to 8.6 months, which is too high for builders to issue more permits. Therefore, the housing recession continues.
From the Census: Sales Inventory and Monthly Supply End-November seasonally adjusted new-build sales forecast was 461,000 units. This equates to 8.6 months of supply at current sales rates.
Median sales price of new homes does not reflect realityy
The median selling price looks solid year-over-year, declining slightly from month to month. However, you should always be skeptical of the median selling price, especially in the new home market. Selling larger homes in smaller sales lots can distort prices. This could also work the other way around, as lower-priced homes sold can cause the median sale price to drop significantly.
From the Census: Sales Price The median sales price for new homes sold in November 2022 was $471,200. The average selling price was $543,600.
There are many new houses under construction
With an oversupply of housing and many homes left to be built, mortgage rates have risen significantly this year, which explains why builders’ confidence has crumbled.
Builders’ six-month confidence has gone from shallow to positive as purchase offer data has increased for more than seven weeks since mortgage rates fell.
If mortgage rates could drop as low as 5% depending on duration and retention, the dynamics of the housing market could definitely change. If that doesn’t happen, next year will mark the first anniversary of the housing recession that began in June. An early Christmas gift of lower mortgage rates has brought the sector to life.
