Sales of “existing homes” followed the same turn. The phenomenon sets in.
By Wolf Richter for WOLF STREET.
OK, now it follows the same scenario: despite supply rising for months, sales of new single-family homes by homebuilders to the public in May fell 6% from the previous month at a corrected annual rate. seasonal variations of 769,000 homes, down 23% from the recent high in January, according to the Census Bureau this morning. This sharp drop in sales occurred against a backdrop of soaring prices.
A similar phenomenon occurred in sales of “existing” homes and condos, where inventories rose for the third consecutive month, yet sales fell for the fourth consecutive month against a backdrop of historic price hikes. Something is wrong.
The sharp drop in new home sales in recent months has brought them back to pre-pandemic levels. And following the boom in apartment and condo construction over the past decade, sales of single-family homes are well below the boom and recession years from 2002 to 2007:
Inventories on the rise. Home builders are busy. They build. They are adjusting to the new market where the sudden explosion of working from home – potentially a long-term change for many homebuyers – is now incorporated into the home. And there are a lot of special homes available for sale.
The number of unsold speculative homes rose for the fifth consecutive month to 330,000 seasonally adjusted homes at the high end of the spectrum since the housing crisis. And the supply at the current pace of sales has increased to 5.1 months.
So despite all of this, prices have skyrocketed – what else is new? We saw it yesterday with existing home sales, where prices climbed 24% year-on-year in May, the biggest price increase on record, despite rising inventories and a sharp drop in sales. And today we are witnessing the same phenomenon in the sales of new homes.
The median price of new single-family homes rose 2.5% from the previous month and climbed 18.1% year-on-year, reaching a record high of $ 374,400, beating the previous record for January:
These new homes are sold by home builders to the public, unlike “existing” homes, which members of the public trade among themselves. It changes the price dynamics. When Fed and government money spouts knee-deep in the streets and people search for larger homes to accommodate one or two offices, home builders try to accommodate them, including with higher prices. .
Homes sold for over $ 500,000 accounted for 24% of total sales in May and April, the largest share of the data. And homes that sold for over $ 400,000 accounted for 45% of total sales, also the highest share in the data. Dollars circulate freely. People who buy houses are mobilizing.
But the number of people willing or able to buy under these conditions is decreasing. Some might take a step back to look at this real estate bubble from a distance. These are the people who went on the buyers’ strike. Then there is also the shift to working from home which may have taken its course, with companies shifting from remote working to a hybrid model; After the initial flood of work from home has been accommodated, the searing demand for new single family homes may now be in the early stages of cooling.
Whatever the causes of this sharp drop in sales compared to the scorching levels of a few months ago, both for new homes and for “existing” homes and condos, in a context of rising inventories, this indicates that there are potential buyers who have gone on strike under current market conditions.
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