After watching decades of economists’ forecasts, my off the cuff observation is that economists are among the most optimistic people on the planet. 
Economists expected a bounce in new home sales from a 619,000 seasonally-adjusted annualized rate (SAAR) to 640,000. Instead, sales fell slightly to 617,000.
New Residential Construction
Today, the Census Department released the New Residential Construction report for June.
- New Home Sales: Sales of new single-family houses in June 2024 were at a seasonally adjusted annual rate of 617,000. This is 0.6 percent (±14.6 percent) below the revised May rate of 621,000 and is 7.4 percent (±15.2 percent) below the June 2023 estimate of 666,000.
- Sales Price: The median sales price of new houses sold in June 2024 was $417,300. The average sales price was $487,200.
- For Sale Inventory and Months’ Supply: The seasonally-adjusted estimate of new houses for sale at the end of June was 476,000. This represents a supply of 9.3 months at the current sales rate.
Note the margins of error in this report, ~15 percent.
After three months of wild revisions, the revisions this month were negligible. Sales in May rose to 621,000 SAAR from the initially reported 619,000.
New Home Sales Since 1963
New home sales are well below the February 1964 report (yellow highlights).
Who can afford homes? Prices are at record levels and mortgage rates are holding near 7.00 percent according to Mortgage News Daily.
Mortgage rates are down to 6.87 percent today vs a high of 7,94 percent in October of 2023, but that has done little but prevent a further plunge.
Median and Average New Home Sales Price
Key Sales Price Points
- The average sales price is $487,200 down from a high of $541,200 in July of 2022. That’s a decline of 10.0 percent,
- The median sales price is $417,300 down from a high of $460,300 in October of 2022. That’s a decline of 9.3 percent.
- What a person gets for those prices is questionable, but builders are doing all they can to make homes appear affordable.
The problem with median and average price is that it does not reflect what one is getting for the price.
Prices are not adjusted for location, number of rooms, square footage, lot size, quality of construction, or amenities.
The long-term picture is more interesting.
Median and Average New Home Sales Price Since 1963
Recession follows with a lag (yellow highlights) once median and average prices start dropping.
The chart also shows the Fed’s bubble-blowing prowess. Home prices jump coming out of recessions as the Fed pours on liquidity.
One cannot compare a 1963 home to much larger homes built today. But we can compare a home built today vs one built a few years back, pre-pandemic. You are certainly getting less for your money.
Thank you Fed (Not)!
Existing Home Sales Drop 5.4 Percent But Median Price Hits New Record
Yesterday, I noted Existing Home Sales Drop 5.4 Percent But Median Price Hits New Record
Existing-home sales declined 5.4 percent in June. It was the 23rd decline in 29 months. But the median price hit a new record.
Not that anyone needed more evidence, but that’s another sign of Fed bubble-blowing prowess.
Signs of Severe Credit Card and Auto Loan Stress in Generation Z
The people who most want to buy a house, can’t because they can neither afford a house nor the rent they are paying.
That has been an explicit theme of mine since February.
The economy is slowing and that will hit the zoomers first and the hardest, especially renters. This will have a huge election impact.
I tie the economics and politics together in my post Signs of Severe Credit Card and Auto Loan Stress in Generation Z
Maybe one can’t compare a 2024 home to one built in 1964, but my 1st home — built around 1944 — had real 2x4s, beautiful hardwood floors, and real plaster walls. Yes, it was only 2 bedrooms & 1 bathroom, but that thing had craftsmanship than has sadly all but disappeared.
I think all real estate data has been skewed by money launderers. Once China said no citizen could have a bank account larger than $50k US otherwise it would be confiscated, this caused a tsunami of money to go overseas. The same is true of Russian money overseas. The world’s banking and finance system is awash in dirty money from all over the world that comes out clean. Real estate is much easier than the banking system for laundering.
The rent is too damn high
And yet, the difference in the cost of buying vs renting has never been higher. Cost to buy is so high (with prices and interest) that rent is as much as 40% lower … which is a huge gap. So the rent is high, but nowhere near the cost of buying.
It’s not optimism. It’s either stupidity or political goal seeking. How else do you explain economists that constantly miss the target yet keep their job?
It’s not stupidity nor partisan goal seeking. It’s just the financial incentive structure. Economists with pessimistic views don’t get their voices amplified by corporate media. This pervades the entire field including academia, which is partly why they don’t throw out failed models like any actual science would.
Same reason why stock analysts are useless – when things turn sour, they cannot tell you what they actually know will happen, or they lose their access to company leadership.
Who can afford new homes? I keep forgetting that around 25-30% of homes are purchased for cash with no mortgage. For about a quarter of homebuyers, rates just don’t matter.
And most of the buyers that don’t need a mortgage aren’t even American. It is all money that needs to be laundered. If you look at empty homes that have been sold and no one lives in them, that is Chinese, Russian or other foreign money that is simply being laundered. Money laundering will soon come to your neighborhood if it hasn’t.
Data or I call B.S. There are plenty of people paying cash that aren’t foreign entities.
I would add that a large fraction of “cash” is also borrowed money, it’s just borrowed off of other collateral rather than a mortgage on the place being purchased.
Back in 2010 you could buy a lot of houses with a credit card. Those are now priced a lot higher. Landlords can mortgage an existing rental unit and then turn around and pay cash for the next place.
As a real estate investor who has bought with cash … I can say that rates DO matter. I would get a mortgage if the rates were appealing … and preserve capital. But when rates are quite high, by using cash I get a better deal and a leg up on any other potential buyers. Plus, since I am no longer a W2 worker (retired after 35 years in IT) … most banks don’t want to lend to me in spite of an 800+ credit score and most of my houses are owned outright. It’s an odd economy