To entice buyers, home builders are building cheaper and cheaper houses. What are you getting for your money?
New Home Sales Key Points
- The average sales price peaked at $568,700 in December of 2022.
- The median sales price peaked at $498,800 in October of 2022.
- The average sales price in February of 2024 is $485,000. That’s a decline of 14.7 percent, $83,700 from the peak.
- The median sales price in February of 2024 is $400,500. That’s a decline of 19.4 percent, $96,300 from the peak.
New Homes Sold vs Sales Price
Commerce data on new homes is very volatile and subject to huge revisions. Seasonal adjustments are a mess. To help smooth away some of the wild fluctuations, I calculated 3-month rolling averages.
On a rolling average basis, seasonally-adjusted, new home sales peaked at 1.015 million in October of 2020. On an monthly basis (not shown), sales peaked at 1.029 million in August of 2020.
Sales volume declined drastically from October 2020 to the bottom in November of 2022 at a three-month moving average of 575,000. That’s a decline of 43.3 percent.
At that point, home builders decided they would rather build more houses cheaper than fewer, more-expensive houses.
Three-Month Moving Average Changes
- The average sales price is down 8.2 percent, $44,734 from the moving-average peak.
- The median sales price is down 14.1 percent, $67,800 from the moving-average peak.
The price moving averages both peaked in December of 2022.
What Are You Getting?
Price is down but so are room sizes, the number of rooms, lot sizes, amenities, and landscaping.
You are not getting the same house for $400,500 as you did for $496,800. I question the claim that houses are now more affordable.
It’s like saying a bicycle is more affordable than a motorcycle, or cheese is more affordable than moon rocks.
New Home Sales Since 1963
Earlier today, I noted New Home Sales Little Changed in February
New home sales are about where they were in July of 1963 (blue highlights).
Sales are down 35.7 percent from the August 2020 seasonally-adjusted annualized peak of 1,029.
New Homes For Sale By Stage of Construction
Allegedly, there are 463,000 new homes for sale. But 106,000 of them have not even started.
85,000 are completed and another 272,000 are under construction. Data only dates to 1999, but the number under construction is on the upper end of the range.
Builders are optimistic they can sell the homes they have started.
The number of homes for sale and homes under construction may be flashing some serious warning signs. Both are at or above levels that preceded prior downturns.
Many of those who want to buy are priced out and have other financial difficulties.
Credit Card and Auto Delinquencies Soar
Credit card debt surged to a record high in the fourth quarter. Even more troubling is a steep climb in 90 day or longer delinquencies.
Record High Credit Card Debt
Credit card debt rose to a new record high of $1.13 trillion, up $50 billion in the quarter. Even more troubling is the surge in serious delinquencies, defined as 90 days or more past due. For nearly all age groups, serious delinquencies are the highest since 2011.
Auto Loan Delinquencies
Serious delinquencies on auto loans have jumped from under 3 percent in mid-2021 to to 5 percent at the end of 2023 for age group 18-29. Age group 30-39 is also troubling. Serious delinquencies for age groups 18-29 and 30-39 are at the highest levels since 2010.
Generational Homeownership Rates
The above chart is from the Apartment List’s 2023 Millennial Homeownership Report
Those struggling with rent are more likely to be Millennials and Zoomers than Generation X, Baby Boomers, or members of the Silent Generation.
The same age groups struggling with credit card and auto delinquencies.
Conclusions
Two different polls show millennials and zoomers are unhappy. And they are unhappy for the reasons I stated.
Many have concluded they will never be able to afford a house or have kids. Those who have concluded that are likely correct.
For more discussion, please see US Drops to Number #23 in the World Happiness Report
Home Affordability
Earlier today I asked “Are we about to run out of people who want a home and can afford a home?”
Declining price suggests that.
Builders have stabilized the number of transactions, for now. But it’s at the expense of price.
The people who most want to buy (zoomers and millennials) are very much priced out with mortgage rates near 7.0 percent, while getting less and less for their money.
A average decline of $44,734 from the moving-average peak ($67,800 from the median peak) did not make homes affordable.
The new home sales transaction rebound (second chart) peaked at 707,000, New sales are now 660,000, a decline of about 6.2 percent despite declining prices.
Meanwhile, based on the number of homes under construction, homebuilder optimism is still rising (4th chart).
Homebuilders are stretched and may finally be a decent short. That’s an observation, not advice.
We have a house built in 1910. The workmanship and materials are far superior to what they’re building today. We got lucky and bought in the eighties when prices and interest rates were down.
The location of new homes may factor in their lower price. Areas near metropolitan centers have been developed, or the land is expensive. Before the pandemic, real estate developments 70 miles or more outside the city were expanded. For a century, these places were farming communities and ghost towns from the previous gold rush. New residents are commuters who endure the hour and half drive for employment, remote workers and retirees. If stagflation forces long-rates to rise, and home values to fall, will corporate investors sell real estate holdings and purchase long bonds. It will be interesting if these remote locations return to their former ghost town past.
It’s unnatural for home prices to only go up in value!
It is all about the interest rates and the old assumption that your take home pay will rise throughout your life. To tamp down inflation the Fed raised interest rates. The negative side effects include new homes and automobiles that cost too much because of expensive financing.
Joe says things are great because of him. But high interest rates caused two of his
biggest failures. Housing is in a crises situation and since you can’t afford any
new car you can’t afford an electric car. So, you put tires on your old gas guzzler
and drive it four more years and you reroof your home and decide to Shelter In
Place.
Stagflation or a 10 Ounce Can of Tomato paste today costs MORE than a 12 ounce can cost us five years ago. MORE $$$ for less product.
A Dozen Eggs, four years ago (Jumbo) could be had for 99 cents and how it is costing $5.25 here in the North State of Cal. We are visiting our folks.
SMALL bags of Groceries are now cost us as much as FOUR bags of Groceries just a few years ago.
It is all inflationary and the only difference now is that there is a RATE OF INFLATION downturn, which means the R.O.C. has decreased.
Prices are up over 5 years DRAMATICALLY and BIDENOMICS is really working for us, huh? Fuckonomics.
5 years? Biden has been president for 3. Guess you need to throw trump in there too.
Throw Obama in there too. He had eight contiguous years to screw things up and most have been left in place.
“It’s like saying a bicycle is more affordable than a motorcycle, or cheese is more affordable than moon rocks.”
Here’s a better example: “It’s like saying a 1000cc Honda Sport Bike two years ago is now cheaper if you buy a 600cc Motorcycle Today.”
How about declining food.
link to youtu.be
1) The boomers can sell their $1M/$2M homes, collect 4%/5% dividends and move to 1/2BR for $1.5K/3K in other areas. They will save taxes, insurance and maintenance. The next stop is a coffin.
2) The silent peaked in 2013/14. The boomers never reached their level. The boomers peaked at 80%, a lower high. They are in a trading range for twenty years, in distribution.
The silent and the boomers are glued together, tilting down.
3) Gen X may be peaking at around 70%, a lower high. They might spend a decade or two in a trading range. The silent and the boomers might cross and breach them. In recession ALL three will turn lower.
4) In eastern Europe mums & pops live together, packed with kids and grand kids. The young couple works and the older folks take care of the children and the cooking. They pull together to save money. In the Blue Zone areas dirt poor centenarians live together in small huts. In “DALLAS” the rich lived together in a mansion.
5) Other families believe that separation is best. The kids live separately, possibly nearby. Grandma keeps them happy by not intervening between husband and wife on a daily basis. They don’t cook for them, raise the children, tell them how to spend money and which religion to practice. Grandpa let them run their own house, supervising them from a distance. Macro vs micro management.
The “Generational Homeownership Rates 1985-2022” chart seems to show the generations are 15 years apart. And to the extent the chart shows, very similar. Similarity is not the conventional wisdom.
Given that Home Depot practically hides “linoleum” type flooring and “Formica” type countertops, and concentrates on higher end versions of both flooring and countertops, I’d guess that each generation’s houses are a bit more spiff. Hard to make apples to apples comparisons when it’s fresh apples to old apples.
Small, independent builders are inherently an optimistic lot. Big corporate builders undoubtedly have more economic data at their disposal and are more likely to pay attention to it. The smaller guys are often cocky about how good their product is and how sought after their homes are. Thank God there are guys like that , but it explains why builder confidence is higher now than it should be. New construction and especially land development is prone to boom and bust cycles, but they’re always surprised when it goes bust and they’re left holding the bag.
Boise market is also hot like Huntsville. Note, the hot housing market is not being created by organic local growth, but people from out of state trying to find Americana.
New construction house sizes in Boise are still very large. Still catering to the out of state buyers.
My house has a $500,000 value at 1480 sq feet with a quarter acre. Way overvalued.
This will not end well.
Ever since Musk bought Twitter, I have hoped he would move the HQ to Huntsville, which is chock full of telecom engineers.
Prices are still rising in Huntsville, they can’t build fast enough.
Rents are rising too. They are building 8500 apartments, and I’m shocked at how many cars are parked outside by tenants. I’m a huge HSV bull but I thought they overbuilt, but apparently not.
They also charge crazy fees for rentals, like a $10 fee to pay the rent and $25/mo for the “trash faries” to bring your bag out to the dumpster.
If you fly in to Huntsville, you see nothing but house construction north of Hwy 72 in Madison and Limestone Counties. Meridianville is a great bedroom community.
Huntsville job market and housing market is 🔥!
link to noradarealestate.com
All that goverment spending in Huntsville.
“According to the U.S. Census Bureau, more people moved to Alabama from Florida than any other state in 2019. Some 14.8% of Alabama’s new residents from other states came from Florida, followed by 14.4% from Georgia and 9.5% from Tennessee. All three states are Republican-dominated.
Texas sent more people than any other state not bordering Alabama, constituting 8% of new Alabama residents from other states.”
link to 1819news.com
Ah, Alabama, where the Confederate Constitution was signed by the five states.
And then they quickly moved to Richmond VA which Robert E Lee saw as a strategic military mistake. It wouldn’t have mattered anyway since the North was patrolling the streets of New Orleans before the South could build their first munitions plant.
The new homes are smaller, the lots are smaller, and sometimes, the new home share a common wall. They are selling you much less of a home for a little less money.
I don’t think this is necessarily a sign of “consumer stress”. It’s simple supply and demand. There are less modest homes for sale (relative to the supply of luxury homes from a historical perspective) in the existing homes market. As a result, builders are building new homes in the segment of the market where they currently have less competition from existing homes. Or in other words, what you are seeing from home builders is essentially a response to the inventory dynamics in the existing homes market.
I agree. The size of homes has gotten quite large in the last 50 years. Alot of that increase in space goes unused in my view.
A fascinating phenomenon I’m seeing is the rise in trailer parks — real trailer parks, with RVs, not double-wide mobile homes. Every one of them in my area is packed and its not even tourist season. Even more, two more have gone up, one specifically catering to seniors.
There is even a lot down the street from me where the folks are living in an RV trailer on blocks, boarded up around the base to keep the cold out.
I guess that is the equivalent of a tiny house, sans the cedar siding.
They park on the streets of most cities near the parks where they can use public facilities, or near the ocean where they can bathe, The American work ethic and talent earned tar paper shacks before the post war monopoly on manufacturing. Those days are gone, but building codes don’t allow tar paper shacks.
YET! That small “pocket park” that is around the corner, and the empty parking lot at the empty church will get rezoned into tiny home and tent cities.
It just takes time for the whole unwind to happen. We’re just in the second inning imo. We might be much further along by now were the government and the banks not doing everything in their power to keep people in homes they can no longer afford to be in (and printing money at wartime levels). You can see from the main chart that every single time that the line has jerked up in a near-parabolic manner, it has fully retraced the other side of the Eiffel tower (allowing for the slight up and to the right trend that is basically “underlying” inflation + artificially low interest rates creating appreciation).
I’m curious. If homes aren’t selling, will banks be more hesitant to initiate foreclosures?
Your guess is as good as mine, but I do know that the government has absolutely no interest in a foreclosure wave and will keep paying the banks to “work things out” with folks. Trump won’t want a foreclosure wave either.
I think the government is encouraging “pretend and extend.” Today it’s all about appearances and controlling the narrative. Don’t want people stampeding in an election year.
Mass murder and intentionally starving the Palestinians was A-OK until it began affecting Biden’s polling numbers. Then something had to be done! FJB! FI!
They are building cheaper and cheaper houses. Smaller houses are being built on smaller pieces of land. Inflation bites and companies react by cutting corners and by making cheaper and cheaper items.
This is happening across all industries. Boeing is the first “name” company to get caught. Many others will follow as companies desperately try to cut costs to maintaining profit targets.
Circling the drain? The deindustrialization of the US? Yes.
Except that there are more new and larger Automotive Factories and Battery Manufacturers and Chip Fabs, Data Facilities and AI training centers and other related advanced industries being built as we speak.
None of which are profitable at all absent huge transfers and subsidies. Many/most of which aren’t even profitable even with those things.
Boeing has had problems since they merged with the incompetent McDonnell Douglas. They couldn’t make the DC10 work and now the MAX and Dreamliners have had massive problems.
They’ve been doing crap work and getting worse for decades.
The housing market is doing EXACTLY what they need to do. Make more reasonable sized houses NOT McMansions.
Now Ford and GM need to start making SMALLER Trucks and SUVs and creating more reasonably priced vehicles. They’ve been making ever bigger and bigger trucks and SUVs, with ever higher prices. Wonder why inventory is piling up on LOTS?
The US is home to oversized houses and lots of wasted space in people’s homes.
Fortunately for Millennials and the Younger generations, Boomers are passing away at around 3,000 per day and retiring at around 10,000 per day. So as those numbers continue to increase, the number of older homes on the market will continue to increase…OR the Millennials and other younger generations will just inherit the homes and move into the Boomers homes, many of which will be paid off or have smaller, cheaper mortgages.
There’s DOZENS of $$Trillions of dollars in inheritance coming over the next decade or two. The kids and / or Grandkids are going to be splitting up the Boomers Wealth and selling off their homes or living in them.
Cheers!
New home sale : sold (brown) is down. Transactions are down since late 2020. In construction 5+ units are down.
Generational home ownership. The silent gen market cap is low. The boomers have been in a trading range for 20 years, since 2005. B&H. They enjoy a higher market cap, bc home prices are up. Millennials are catching up. A lower high, under the boomers, in a low slog up since 2005.
The Boomer line is trending down now, for the same reason that the Silent line started trending down years prior. Do I have to name the reason? Housing affordability WILL return, because by definition, it has to, but if it doesn’t for a variety of other reasons, it will do so when the Boomers move on and their too-big, non-updated homes flood the market. Most heirs will be very quick to sell and split the proceeds, and those that choose to occupy or rent the inherited homes, will still be adding supply onto the overall housing market, depressing value/rents. The boomers are very much a pig in the python, and our leaders know it which is why both parties want a flood of immigrants to offset the deflation they will cause.
Not all boomers are dead as of yet. Nor do all Boomers have deadbeat offspring such as Hunter Biden.
Some even are mature enough and realize that no one lives forever on this World.
There are those who having lived for some years understand that Givernment is not a helping hand but generally comes with a slap in the face,
These things said Boomers tend to find they now have time to enjoy the things in Life that bring contentment such as sitting in the Sun on a spring day, playing checkers or chess with grand-kids.
Building inter generational wealth does not destroy wealth but preserves it.
Finding ways to keep givernments greedy little hands out of ones pocket is a game worth playing.
So counting on housing prices to extensively fall has some unrealness to it.
There will of course be some inventory liquidation which has a short term effect but those who think prices will collapse have not gone down to the local building supply house and tried to purchase something.
Personally every time I decide to do some small project, in my mind there is that ah it will only be a couple of hundred bucks. After the project gets completed comes where the hell did a thousand get spent on parts.