Speculative building, measured by started but unsold housing inventory, is at the highest level since May of 2008. To unload these units, builders will have to offer steep discounts.
Stage of Construction Details
- Homes for Sale: 480,000 the most since January of 2008
- Unsold Homes Started Plus Completed: 379,000 the most since May of 2008
- Unsold Completed Homes: 98,000 the most since September of 2009
- Unsold lots: 101,000 the most in history
Builder Optimism
Allegedly, there are 480,00 homes for sale but 101,000 of them have not been started. That is a land commitment only.
The builders are fully committed once they start building. That is a big speculative investment.
New Home Sales vs Homes for Sale
Sales vs for Sale Key Points
- New home sales are sinking fast.
- Builder commitments as measured by started plus completed is rising fast.
- Unsold land is at a record high, but it’s unsold starts and completions that will pressure builders the most.
New Homes Sold vs Sales Price
Builders reacted to the huge slowdown (first red arrow down) by building smaller homes, on smaller lots, with fewer rooms, and fewer amenities, coupled with mortgage rate buydowns.
About a year ago, buyers balked while median prices fell and average prices went sideways.
The price insensitive buyers are still willing to pony up, for now, but what are builders going to do for an encore otherwise?
I dislike median and average price computations because they do not reflect what you get for your money. Is it granite or vinal? Three bedrooms or four? Etc.
I have no idea what those buyers are getting but I strongly suspect much less for the money than four years ago. Mortgage rate buydowns are not free. Getting far less for your money does not make a house affordable.
Existing-Home Sales Decline 1.9 Percent
Existing-home sales fell 1.9 percent in April and are also down 1.9 percent from a year ago. Sales have not gone anywhere for 17 months.
Key Highlights
- Existing-home sales faded 1.9% in April to a seasonally adjusted annual rate of 4.14 million. Sales also dipped 1.9% from one year ago.
- The median existing-home sales price rose 4.8% from March 2023 to $393,500 – the ninth consecutive month of year-over-year price gains and the highest price ever for the month of March.
“Home sales changed little overall, but the upper-end market is experiencing a sizable gain due to more supply coming onto the market,” said NAR Chief Economist Lawrence Yun.
Case Shiller Home Price Index
The Case-Shiller national home price index hit a new high in February. That’s the latest data. Economists don’t count this as inflation.
Chart Notes
- National and 10-City Case-Shiller home prices hit new record highs in February
- OER, CPI, and Rent are indexes measured by the Bureau of Labor Statistics (BLS).
- OER stands for Owners’ Equivalent Rent. It’s the price one would pay to rent one’s own house unfurnished and without utilities.
Case-Shiller measures repeat sales of the same home over time and the indexes attempt to weed out major home improvements.
Case-Shiller is a far better measure of home prices than median or average prices which do not factor in the number of rooms, location, lot size, or amenities.
Home Prices Hit New Record High, Not Inflation
For discussion of the previous chart, please see Home Prices Hit New Record High, Don’t Worry, It’s Not Inflation
Not Inflation?!
Economists, including the Fed, consider homes a capital expense, not a consumer expense.
As a result, they all ignore economic bubbles and blatantly obvious inflation on grounds it’s not consumer inflation. This has gotten the Fed into trouble at least three times. The first was the dot-com bubble, then the Great Recession housing bubble and now.
It’s really pathetic when you make the same major mistake over and over and over. It’s a result of groupthink.
They all believe in the same silly models based on disproved theories including inflation expectations and the Phillips curve. You do not get in the good ole boys Fed club unless you think like a good ole boy.
The big problem with Case-Shiller is the huge lags. It’s nearly June and Case-Shiller is from February. And that reflects sales for 1-3 months prior.
Are Home Prices Still Rising?
I have very strong doubts. But those sitting on an existing home do not want to trade a 3.0 percent mortgage for a 7.0 or higher percent mortgage.
Would-be sellers hoping to move are trapped and waiting things out.
Homebuilders do not have the luxury of waiting things out. As unsold speculative inventory rises, the urge to reduce prices will be overwhelming.
Everyone should check out the Median Sales Price (MSPUS) chart on the FRED Website. MISH has posted that chart numerous time and it showed a huge spike around mid 2022. Now, the once-stratospheric spike is gone and the new top looks like cute little mesa. Clear manipulation in my view, would love to hear MISH’s take.
There will be no big discounts. The Fed and the government will print a few more trillion dollars and hand it to the banksters, who will buy the houses at current prices.
Building Industry is a business.
How is any unsold housing inventory going to get absorbed?
A) lower price or give incentives for purchase.
B) Liquidate to meet Bank obligations and if that fails declare Bankruptcy.
Be smart enough to have taken out non-recourse building loans so the Courts determine whom gets stuck paying the Tab. In this case that is in general all those who extended Trade Credit to Builders unless the individual State has Laws putting Tradespeople before the Banks.
C) Do a Bank workout and rent out unsold inventory becoming a Landlord rather then a Builder.
D) Stop Building. Now won’t that create new needed Housing? Guess it won’t.
Oh gee wiz Building Labor goes on unemployment and discovers that being a Tradesman sucks. Another great incentive to learn a Trade, guess not.
E) Get another speech from a useless politician about poverty and social injustice.
Wow another headliner event for the mass media to blather about.
F) Have you watched out for your own Housing needs?
Cause no one else will.
G) Keep being a Bobble head and believing in magical solutions.
– Speculative building, measured by started but unsold housing inventory, is at the highest level since May of 2008. To unload these units, builders will have to offer steep discounts.
> Unload to exactly Whom? Steep discounts only work if potential buyers are credit worthy. Um, in case you haven’t noticed, but we have a giant vacuum of unqualified families looking for places to Rent, that they can’t qualify for. Where is the 20%down payment coming from, when they can’t even afford “First/Last Month Rent to secure the Rental Home.
Let’s see 20%down on $400,000.00 Home = $80,000.00 & First/Last on a $1,500.00 Rental = $3,000.00.
So Families are having a really hard time coming up with the 3K for First/Last, Anybody think coming up with an Additional $77,000.00 for the down payment on a New Home will be an issue? I Do!!!
New homes cannot possibly come down to the cost that is affordable today, for buyers to have the down payment AND be able to make their monthly mortgage payment. Impossible!!! The Builders are stuck with them until the economy turns around, and that may take some time to meet the above objective. Like a decade or two…
Builders cannot be “stuck” with anything, they have to sell. They can sell at a loss, you know, and they will, but not for long before they shutter operations. But before they do that, they’ll try smaller homes, smaller lots, shared walls, worse materials, etc. They are currently trying all of that. eventually, the math should turn against them anyways and there go the “robust” employment numbers in America.
Big cuts to home prices is only the immediate reaction.
MASSIVE cuts to property taxes and local government spending come after that, as people realize they can’t afford the local government’s largess even if they wanted to.
Amazing how many people are commenting and thinking that mothers will choose to feed the government over feeding their own children. In 10,000 years of human history, that has never even once been the case.
The big problem for state and local governments are the pension promises. Those alone are going to force the taxes to remain high. That’s before considering the union pay for all those government employees.
I agree something has to be done. But until/unless they can declare bankruptcy there is literally no way out for those cities. Tax payers can revolt and keep voting out those in charge but bankruptcy will be needed to fix the pensions and salaries.
This question was answered thousands of years ago.
The king can order the tide not to come in. The tide does not have to obey.
Those pensions are nothing but promises made by a dead king.
Ask the UAW how all their unbreakable pension promises went. Ask the USW too.
F#ck the public unions and f#ck all their ghouls in office too
I know!!! The Fed can just buy up all the unsold inventory and everything will be fine… just like they are considering doing in China.
Maybe they can bulldoze all the homes afterwards and rebuild them?
Meanwhile we steam oil out of sand … cuz there is so much easy stuff remaining
My sense is that some of this regional. And impacting Southeast and southwest more. Although even though there are few houses for sale in my area, noticing some price drops. Not sure if it is case of people trying to get the max dollar and reality setting in or lack of demand.
“Existing-home sales fell 1.9 percent in April and are also down 1.9 percent from a year ago. Sales have not gone anywhere for 17 months.”
Meanwhile, lots of wackiness going on in the real estate market in the Northeast caused by a dire shortage of homes for sale.
Homes in Rochester, NY sold for 15.5% above asking price on average in April 2024.
In April 2024, the median listing home price in Albany, NY was $275K, trending up 14.6% year-over-year
In April 2024, the median listing home price in New Britain, CT was $274.9K, trending up 19.6% year-over-year.
The common theme of all those “best places to live in 20xx” articles is that they are written by 22 year old recent college “journalism” grads who have never actually visited most of the places they write about.
We talk a lot about the forced and sudden de-industrialization of Germany in particular and Europe more generally… have you seen what has been happening at a much slower pace in the northeast USA? And pretty much all of Canada (except Alberta and oil / natgas)?
An economy that runs off government spending (this includes healthcare and education even if its “off budget”) … doesn’t produce any wealth. It just sells off the family silver at varying rates until it is broke
$100,00 yearly government pensions will keep the Northeastern real estate market afloat. The college grads to rent forever.
Until the millenials/Yers wise up and stop taking on student debt, vote for government pension haircuts, and vote out the boomer politicians.
those government pensions are not money good. They cannot be paid, therefor they won’t be paid.
I agree the scam is likely to continue a few more years, but less than a decade. Public unions are soon to go the way of the UAW.
College milllenials are slowly waking up that their degrees are (at least collectively speaking) worthless. Some of the STEM degrees are probably worth something, but most college degrees have a negative net worth.
A young lady who works in a northeast office of my company recently forwarded around a twitter or tik-tok video of a friend of hers (literally crying) complaining about the job market and student debt. The complainer was holding a starbucks coffee while driving in her late model sedan…. and stated that she had TWO college degrees and couldn’t get a job. Degrees in communications and business marketing. Plus some other thing that, if I’m honest I did not listen to.
A cheap 2-3 cup coffee maker at Walmart is $25, and a giant can of name brand ground coffee is about $15 (as of last weekend). For the price of one WEEK of starbucks, one can buy a coffee maker and roughly TWO MONTHS of ground coffee.
A beat up old used car instead of a brand new one would save tens of thousands in initial price, in financing costs, in parking costs, in taxes. Driving around in a city (crime and vandalism), a used car is more practical anyway.
How much is her marketing degree worth if this young lady lacks any sort of street smarts?
I live in the CT area. 16% of the population is now immigrants. It was never that high 20-30 years ago. The good jobs left and now the immigrants have come in.
I should also add that Albany is not in the same decrepit state that New Britain or Rochester is. Albany probably has the healthiest economy in all of upstate NY. Prices are soaring there with no end in sight.
New home sales are now going to fall below the housing bubble lows. The layoff phase of the economic cycle is beginning.
I officially engaged two real estate agents in two different states and have been asking them to put offers on some properties. I have been waiting for 2 or 3 years now to buy more rental properties but the numbers didn’t work. I can make more money on T-bills than the hassle of rentals but I am starting to see some potential deals out there.
I looked at a condo today and another one a few days ago in a nice area and may put in a low ball offer to see how desperate people are to get out. I can wait, I am in no rush still collecting 5.4% in T-bills. I need at least 8 to 10% to make the property rental worth it. The condos for sale are all investors trying to get out too so that’s very telling, they got in at the wrong time and now realized they made a mistake. Almost time for me to swoop in and pick the carcasses.
Game of Trades had a good video out on youtube about the potential for a massive market correction and we all know it’s gotta correct at some point.
Just don’t get squatters as part of the deal.
That’s why I buy condos, they are typically secured with double doors, key fobs for elevator and garage access. They have security cameras in key traffic places and they don’t flood if you’re above the first floor. Minimizes maintenance and landscaping too.
Condos aren’t suitable for most families so i don’t need to worry about kids tearing up the walls and floors. These are nice condos rented by singles or working professional couples with high income.
Any squatter that isn’t dressed right will probably get shot by the local police while trying to figure out how to enter without a key fob.
Where did ya look?
On zillow and redfin of course! lol.
If you mean what state/city/neighborhood well that’s trade-craft my friend and I don’t need the competition but if you need some ideas….
link to youtube.com
Watch the 6:30 mark although the full video is interesting to watch.
Here is another place to look. I actually saw a few condos here about a year ago and the numbers didn’t work. I might go take a second look but prices here have crashed. Keep getting sent videos like the one below.
link to instagram.com
“I looked at a condo today and another one a few days ago in a nice area and may put in a low ball offer to see how desperate people are to get out.”
Time for more gaslighting, can you explain how you monitor your numerous houses across the country, your numerous houses and condos across the county? What transportation do you use to look at the condos?
Again common sense, if anyone has owned houses and condos situated in different states, you know the difficulty involved.
I thought I just saw that there was only 3.5 months of inventory. Doesn’t seem like very much when the average was six? No?
According to Wolf Richter’s latest missive on housing, units priced in excess of 1 million rose 40% YOY in April. And units priced between 750-1 million were up over 20% YOY. The high end is skewing the median and average selling price.
I agree with Richter, three houses on my street currently for sale 1.1 M to 1.7M- four sold in past 2 months. Biggest turnover I’ve seen in the 20 years living here.
I read the same article.
It seems quite likely that is exactly what’s happening since first time buyers are priced out of the market. However people already in a home can sell that and buy another one and the gains in their current home offset the gains in the new one they want to buy so they aren’t really noticing (or don’t care) about the higher prices because it’s not affecting them like it is for first time buyers.
Currently, 33% of all homes are bought by first time homebuyers. That’s a pretty big percentage.
If you already have a house but still have a mortgage, your next mortgage will be over 7% and your monthly payments will be much higher.
Also, in tight markets with sellers getting multiple offers over asking prices, no seller is going to consider an offer with contingencies such as the buyer having to sell their current home first.
Are you smoking crack and do you plan to share with the rest of the class?
Thanks Eric. This is precisely why I do not like median and average home prices. It’s impossible to know what the comparison is.
I like Case-Shiller but it is 5-6 months lagging