Housing boom is over as new home sales fall to pandemic low
By: Diana Olick (CNBC)
S E E D E D C O N T E N T
Published Mon, Jul 26 202111:30 AM EDTUpdated 58 Min Ago Key Points
- Sales of new single family homes fell to an annualized rate of 676,000, 6.6% below May's rate of 724,000 and 19.4% below the June 2020 level of 839,000.
- The median price of a newly built home in June rose just 6% from June 2020
- The inventory of new homes for sale jumped from a 5.5-month supply in May to a 6.3-month supply in June. Last fall, it sat at a low of just 3.5 months.
VIDEO2:3102:31 New home sales drop 6.6%, vs. 3.4% increase expected Squawk on the Street
Sales of newly built homes dropped in June to the lowest level since the early days of the coronavirus pandemic in April 2020, according to data released by the U.S. Census Bureau on Monday.
Sales of new single family homes fell to an annualized rate of 676,000, 6.6% below May's rate of 724,000 and 19.4% below the June 2020 level of 839,000. Analysts were expecting new home sales to increase by 3.4% in June.
After a year of frenzied buying and price gains in the double digits, newly built homes are now out of reach for much of the demand that remains in the market.
The median price of a newly built home in June rose just 6% from June 2020, and while that is a large gain historically, it is nothing compared with the 15%-20% annual gains seen in previous months.
Most of the homebuying is on the higher end of the market, and builders cannot afford to put up affordable homes due to skyrocketing construction costs.
Softwood lumber, in particular, spiked more than 300% during the pandemic, and while it has fallen back dramatically in the last month, it is still about 75% above its 2019 average. Other lumber products are still significantly more expensive.
"We also know there are shortages of appliances, labor and affordable lots," noted Peter Boockvar, chief investment officer at the Bleakley Advisory Group. "The moderation in home sales is likely a combination of sticker shock and the slowdown in the ability of builders to finish homes because of a variety of delays."
The inventory of new homes for sale jumped from a 5.5-month supply in May to a 6.3-month supply in June. Last fall, it sat at a low of just 3.5 months. In June, the number of homes for sale that had not yet been started hit an all-time high.
"Annual comparisons will get even more difficult in coming months, as it was this time last year that the market began to surge and reach highs not seen since before the Great Recession," wrote Zillow economist Matthew Speakman in a release.
Buyers in June were also hit with higher mortgage rates, which spiked about a quarter of a percentage point during the month. While that may not sound like a lot, if buyers are already stretched by higher home prices, they have less of a financial cushion to absorb higher mortgage rates.
Single family housing starts continue to gain, albeit slowly and not on the lowest end of the market. Permits, an indicator of future construction, are not as robust as the market needs.
While there is unquestionably still strong demand from buyers, much of it is being squelched by affordability and supply issues. Those signs clearly showed up at builder home sites in June and have been a factor in weakening homebuilder sentiment for the past two months. Noted builder analyst Ivy Zelman wrote as much in a note last month.
"We are shifting our tone on the housing market based on our analysis of proprietary data showing early signs of a cool down," according to the note.
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Imo something was going to have to give as the prices of homes become out of reach of the average buyer.
The value of my house is primarily a paper number for me. I intend to live in it the rest of my life so it means little. My house now is about 15-20k short of its high value in 2006. While values may taper off or decline slightlly I don’t see a 2007-2011 decline coming.
I don't know where you get your numbers but my house is worth more now than in 2006.
So is mine. And I live in Arkansas
I sold my house this year while selling was high.
Smart move. I have seen the prices in my neighborhood jump up about 30 grand.
I am thinking prices are going to drop again.
I had not planned to sell until now, but I somehow felt the time I did was right.
I think you are right but the only down I see is, you can't just go back out in the market, yet anyway, because the prices ARE high. The only way to do this, and I have talked about it with friends and family, is to sell and plan on renting for a period of time hoping that the prices come down and hold on to any profit/equity dollars for a few months or maybe a year or more, until the prices DO come back down. As it stands now, if one buys, one is buying in the peak and will be subject to the price of the new place falling too and equity goes **POOF**.
Wife and I made an offer on our home we just purchase this spring back in January. From the time we did and signed a purchase agreement until the end of March, the appraisal went up by $28K
And in my area, we are having a supply shortage of homes for sale. Thus the bubble.
I thought about that. People buying high then become underwater.
Good for you. My son and daughter in law want to come back to Arkansas. Now that house prices are falling, they may want to hold off for another 2 years
There sure doesn't seem to be a lag here. You want a new home it's 9 to 12 month wait and resales are sold almost as fast as they are listed.
I know you live in Central Florida? Is that correct?
My son and DIL live in Gulf Breeze, just outside of Pensacola. I honestly don't know what the housing market is like there
Yea, I live in north central FL. One of the drivers of the cost of homes in the resale market is the lack of inventory same as with new homes.
Not sure what is happening in the Panhandle in the RE market.
Florida always seems to bring out the real estate speculators who bid up properties in bubbles. Plus, low rates are basically subsidizing higher prices...
FL, and many other states the speculators are bidding and buying. The main reason for the rising prices is the lack of inventory, both new and resales.
I have a townhouse in So Cal that I've owned for a number of years and I was thinking of selling. Checked what it would sell for and decided that there would be some tax implications for me so I'll just keep renting it out and when I kick the bucket it's in a trust and can be sold at that time and the proceeds are divided among the kids.