New Home Sales Crash Accelerates, Sales Down 12.6 Percent in July

August 23, 2022

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4:19 pm

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38 comments

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Economics

*New Home Sales data from Census Department, chart by Mish*

Housing Crash Synopsis

May: On June 24, I reported New Home Sales Jump 10.7 Percent in May in Big Upward Surprise
June: On July 26, I commented New Home Sales Crash 15 Percent From Original May Report, 8.1 Percent as Revised
May Revised: The Census Bureau originally reported May sales at a seasonally adjusted annual rate of 696,000. As of July, May has been revised to 630,000 (9.5 percent lower, and one heck of a set of revisions).
July: New Residential Construction Report.

July New Home Sales

Sales of new single‐family houses in July 2022 were at a seasonally adjusted annual rate of 511,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.
New home sales are 12.6 percent below the revised June rate of 585,000
New home sales 29.6 percent below the July 2021 estimate of 726,000.

Sales Price

The median sales price of new houses sold in July 2022 was $439,400.
The average sales price was $546,800

For Sale Inventory and Months’ Supply

The seasonally‐adjusted estimate of new houses for sale at the end of July was 464,000.
This represents a supply of 10.9 months at the current sales rate.

Seasonally Adjusted Revisions

March as reported 715,000. March as revised 707,000
April as reported 629,000. April as revised 619,000
May as reported 696,000. May as revised 630,000
June as reported 590,00. June as revised 585,000

Today the commerce department revised May lower a second time. With that, the big upward surprise boom in May simply vanished.

Supply of New Homes

The supply figures are very distorted. The Census Department counts as “supply” homes not even under construction yet.

Nonetheless, supply of 10.9 months is the highest since March of 2009, at 11.0 months.

New Homes for Sale by Stage of Construction

Of the purported 464,000 homes for sale, only 45,000 are actually built. Another 312,000 have at least started.

107,000 new homes for sale have not broken ground yet.

The 312,000 started homes is significant, only exceeded in housing bubble years.

Lumber Futures

Lumber futures dropped from over 1,400 to 526 since March.

Builders who started homes on spec earlier this year are going to get killed on lumber prices.

Existing-Home Sales Crash

On August 18, I noted Existing-Home Sales Fall 5.9 Percent, Down Sixth Consecutive Month
On July 20, I noted Existing Home Sales Dive Another 5.4 Percent in June, Down Fifth Month

Housing Starts Crash

On August 16, I noted Housing Starts Drop 9.6 Percent, Now Below Pre-Pandemic Level, Led By Single Family
On July 19, I commented Single-Family Housing Starts and Permits Dive Eight Percent in June

With new home sales down 12.6 percent in July, expect miserable housing starts in August.

Hello Recession Doubters

New home sales are down a whopping 38.5 percent since January!

When have we seen housing data this week when the economy was not in recession?

Hello Janet Yellen, President Biden, and all the recession doubters on Twitter. This is what happens in recessions.

For further discussion, please see my July 24 post A Big Housing Bust is the Key to Understanding This Recession

This post originated at MishTalk.Com

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Six000mileyear

3 years ago

The New Home Sales chart shows sales have fallen 50% from this housing cycle’s top. Every decline of more than 50% has had a recession. This is the first time sales have fallen 50% before a recession has been declared. What’s surprising is prices are only now starting to fall.

8dots

3 years ago

New Home Sales look like 1929 to 1936. Twenty/ thirty years of trading range might be coming. If the analog correct we haven’t reached the half line, yet. Prices don’t matter, Real prices and Price/Rent do.

Fred : Mortgage delinquencies rates all banks between 1991 and 2022 : Q2 2022 @1.96%, a higher low > Q4 2004 @1.41%, at nadir. In Q2 1995 REAL Prices reached their low, but the delinquency rate was slightly up to : 1.55%. Few years after the S&L crisis peaked. // Dick in the Bushes. Chainey 4th purple heart < the mattress.

JackWebb

3 years ago

Reply to 8dots

The buy v rent equation has flipped a bunch of times. The problem now is that rents are high because vacancy rates are very low.

8dots

3 years ago

Mortgage delinquencies < 2%. // $2K for u, $2K for me is back. $40K student loans jubilee… AAPL weekly DM #8.

JackWebb

3 years ago

Reply to 8dots

It’s been 30 years since I studied it in depth, but I think mortgage defaults were ~0.5% before lending standards were obliterated during George W. “Here Comes Stupid” Bush’s terms in office.

Christoball

3 years ago

Money lent into existence is down 12.6 percent from a month ago and 29.6 percent from a year ago.

SAKMAN

3 years ago

Reply to Christoball

Can you disclose the source please?

Christoball

3 years ago

Reply to SAKMAN

I was referencing the title but I did make one flaw. I misread it as Home sales are down 12.6 percent from a month ago and 29.6 percent from a year ago instead of “New home sales are down 12.6 percent from a month ago and 29.6 percent from a year ago” but this may be close anyway. I do not have existing home sale stats but they may be in tandem give or take.

For the most part money lent for Real Estate did not exist before the transaction and was lent into existence and placed into the seller’s account. There are other monies lent into existence but Real Estate is probably the greatest participant. I made my statement somewhat conceptually and you did catch me in my conceptual exuberance. Perhaps lets say those numbers could be cut in half; that is still 6 percent and 15 percent respectively. Real Estate slowdowns are quite significant because Real Estate sales are a major source of money supply expansion.

Tony Bennett

3 years ago

Count MBA among those caught flat footed.

“The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for July 2022 shows mortgage applications for new home purchases decreased 16.1 percent compared from a year ag at the end of August ….. MBA’s estimate of new single-family home sales, which has consistently been a leading indicator of the U.S. Census Bureau’s New Residential Sales report, is that new single-family home sales were running at a seasonally adjusted annual rate of 591,000 units in July 2022, based on data from the BAS.”

https://www.mba.org/news-and-research/newsroom/news/2022/08/22/july-purchase-mortgage-applications-for-new-homes-decreased-16.1-percent

Roy

3 years ago

I am struggling to understand this sequence of statements:

“Lumber futures dropped from over 1,400 to 526 since March.

Builders who started homes on spec earlier this year are going to get killed on lumber prices.”

If builders starting homes on spec when lumber was very high (1400) are now seeing a big drop in lumber (526), wouldn’t they be doing better price-wise than if lumber prices stayed high?

I can see how any builder operating on spec could face disaster if they can’t sell their houses once completed as the declining sales volume suggests.

JackWebb

3 years ago

Reply to Roy

Lumber is ~5% of the cost of a stick-built house. No one’s getting killed by lumber, except the guy who fell off the roof and landed forehead-first on a 2×4 leaning up against a wheelbarrow.

Mish

3 years ago

Reply to Roy

They paid 1,400

Prices of homes declining

They cannot get what they paid. Perhaps as much as $40K worth of lumber.

Land prices dropping as well.

Mish

3 years ago

Reply to Mish

Also Cancellation rates running a massive 18%

But for this discussion what matters is homes started in March on spec. Builders paid lumber and land at March prices.

The same home started today might be $80K less expensive to build if a $40K cheaper lot and $40K cheaper materials is possible.

JackWebb

3 years ago

Reply to Mish

Lumber is a minor factor, and I don’t see any evidence that other costs have declined. Also, I don’t know the degree to which lumber spot and futures prices get passed through, especially on the downside. Next time I’m across the river, I’ll stop in at the lumber dealer and ask some questions. For now, I think you’re being too optimistic.

JRM

3 years ago

Reply to JackWebb

There are very few houses that don’t use lumber in their manufacturing..

You need to visit a construction company that builds houses to see how they are built….

Primary lumber is used from floor to roof!!!!

And visit a lumber yard where they cut the boards and make the plywood!!!

I’m betting every building you have been in has wood somewhere in it, which is part of the cost to build it!!!

Billy

3 years ago

Most of the top home builders are still going 100%. They are telling their suppliers that they expect to start slowing down production in the 4th quarter.

The way of home buying has changed a lot compared to the 2008 collapse. They used to build 4-7 model homes and start on building 25-100 homes before even selling the first one. It was a very economical and efficient way of building. Contractors rarely got in each other’s way. They were able to build them cheaper and faster.

Now, they come up with digital models or build 1-2. They bring in prefab containers to show off interiors and options. After sign to purchase, you get approved and the home builders receive funding. It could take 6+ months before your home is built. This way is less efficient but it protects the developers a lot more.

Captain Ahab

3 years ago

Reply to Billy

Builders, like real estate agents, tend to believe business will continue unchanged… until they are bankrupt.

JackWebb

3 years ago

Reply to Captain Ahab

I bought my first house from a builder who’d gone bankrupt. They’re like sharks, always swimming.

Billy

3 years ago

Reply to Captain Ahab

I was referring to KB, Beazer, and D.R. Horton

JRM

3 years ago

Reply to Captain Ahab

Before the 08 crash out local paper would constantly have stories from our local real estate company bragging how the real estate was booming and buy now..

“No collapse in real estate any time soon”, “No threat to the US economy”, then “BOOM” 08 happens and they were complaining how they didn’t see it coming!!!! They lost millions in the collapse!!!

JackWebb

3 years ago

All recession talk has been suspended until the day after the November election.

JRM

3 years ago

Reply to JackWebb

This is what the Democats are begging for!!!

electronmobility

3 years ago

I concur, the series of data points of recent months, are compelling evidence that the housing

downturn will be steep, unlikely to swing or return in a positive manner. Not for awhile, especially

with the Federal Reserve’s monetary policy statements so far. Looking to hear what Sir J. Powell has

to say in his Fed speech at Jackson Hole summer retreat meetings. Should be quite interesting,

considering all that has occurred in the months(2022) leading up.

vanderlyn

3 years ago

great analysis. i’m still in the camp of stagflation. recession with inflation. cue the bell bottoms disco music……….

Tony Bennett

3 years ago

“Experts” once again on top of things …

expected … 575K

range … 540K to 610K

actual … 511K

Jmurr

3 years ago

Having stupidly bought a house at the top once, this is totally understandable and a good thing. It will allow you do people to buy affordable homes after the 30-40% decline.

Tony Bennett

3 years ago

“Nonetheless, supply of 10.9 months is the highest since March of 2009, at 11.0 months.”

…

Normally, that would easily qualify as top rung on podium. But not today

median / mean sales price

June ——————-> July

median

$402,400 —–> $439,400

mean

$456,800 ——> $546,800!!!!

Top 10%ers cluelessness / faith in FR to support asset prices on full display.

KidHorn

3 years ago

Housing crash right on queue.

Tony Bennett

3 years ago

Reply to KidHorn

Yep. First sales slow then prices drop.

“A high share of home sellers dropped their asking price in July, particularly in pandemic boomtowns, as they struggled to match their expectations with the reality of the cooling housing market.”

https://www.redfin.com/news/home-sellers-drop-prices-july-2022/

JackWebb

3 years ago

Reply to Tony Bennett

My old place in Seattle went on the market in July, and the seller almost immediately cut the price by 8%. It has remained unsold. I wonder if anyone has told them that, in Seattle (probably elsewhere too), the normal best time to sell a single-family house is late spring to early summer, because buyers with families want to move between school years. If you want to buy, the best time is normally between Thanksgiving and President’s Day when buying traffic is low and sellers are more flexible.

The traditional wisdom was overridden by the bubble, but that will change. I saw it directly during the Panic of ’08. The buyers of our old house need to immediately cut the ask by at least another 10% and pray. Unless they do it and get lucky, come winter I think that house is going to be listed for 25% or 30% less than the original listing price. And it will sit on the market until next spring, when they might have to cut some more.

Captain Ahab

3 years ago

Reply to Tony Bennett

“…. First sales slow then prices drop. … then, equity is wiped out. Risk increases interest rates. Then, defaults/foreclosures begin. Price drops again. Rinse and repeat.

JackWebb

3 years ago

Reply to Captain Ahab

I will be surprised if we see anything like the Panic of ’08 in housing. Mortgage lending standards went back to the tradititional ones. We’re not going to see the sort of “jingle mail” that became common 15 years ago. This time, it’s going to look like a more traditional housing recession. Other assets, who knows.

Captain Ahab

3 years ago

Reply to JackWebb

Once an owner loses 30-50% of the ‘purchase price’ (equity wipeout), I think we’ll see cold feet. Why repay the lender for $200K of ‘value’ that is no longer there? Plus home-equity lines of credit will be problematic if/when interest rates escape the Fed’s control–I go back to rational lending–the interest rate reflects inflation + real rate + risk premium…

It will indeed be different to ’06 thru ’08. Mortgage interest rates ranged from 5.2 to 6.8%… The real problem was as much poor lending standards, as the pricing of mortgage backed securities not to include default risk on sub-prime. This time around I think the buzz word will be negative convexity…. “MBS prices tend to increase at a decreasing rate when bond rates are
falling; in turn, their prices tend to decrease at an increasing rate
when rates are rising.” A great many MBS were sold at near-zero interest rates.

JackWebb

3 years ago

Reply to Captain Ahab

The prospect of losing a downpayment keeps people sitting in underwater houses. Everyone? Of course not. But it’s a powerful factor. On the other hand, as in the ’00s, people who took out an interest-only mortgage have no incentive to stick it out if prices collapse. They stick the keys in an envelope and drop them off or mail them to the servicer. It was very common in the Panic of ’08.

Ooooh, convexity. I always hated that math.

Bubba Fatt

3 years ago

Reply to JackWebb

Mortgage lending standards are hardly back to being stringent. Lenders are still handing out mortgages to borrowers with DTI ratios pushing 55 percent (and I’ve seen some get through underwriting at 63% if certain conditions were met that hardly addressed DTI). All the industry did was rename and rebrand mortgage products to get people into houses that they are one blown transmission or major roof repair away from not being able to make the payments on. The ‘lending standards went back to traditional ones’ comment is just plain ignorant. If lending standards went back to being more traditional, we would not be seeing the irrational housing prices and talk of a bubble would be non-existent.

JackWebb

3 years ago

Reply to Bubba Fatt

I know enough people who’ve been in that tunnel. Yes, I’m sure there are exceptions. It’s a big country. But we’re not seeing the massive waves of interest-only and no-doc liar loans that characterized the bubble of the ’00s. There will be distress in housing for sure, but not anything like we saw in the Panic of 2008.

KidHorn

3 years ago

Reply to JackWebb

From what I remember, a big part of 2008 was ARMs resetting to higher rates. They were expecting higher monthly payments to cause a lot of foreclosures. Didn’t really pan out because the FED dropped rates way down.

JackWebb

3 years ago

Reply to Captain Ahab

Given that lending standards returned to normal, the default experience on recent mortgages will be worth tracking.

New Home Sales Crash Accelerates, Sales Down 12.6 Percent in July

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