New home sales: if you lower prices, they (buyers) will come
New home sales: if you lower prices, they (buyers) will come
– by New Deal democrat
New home sales are the most leading of all the housing metrics, but suffer from being heavily revised as well as extreme volatility.
With that caveat out of the way, in December new single family home sales (blue in the graph below) rose 49,000 on an annualized basis to 664,000, just about in the middle of their last year’s range:
Because the much less volatile new single family home permits tend to follow the trend with a slight lag, I show them as well. Today’s report suggests permits will probably level off near current levels.
The median price for a new home, meanwhile, declined to $413,200, the lowest in two years (blue, right scale). Since this isn’t seasonally adjusted, the YoY metric (red, left scale) is more important, and that declined -13.8%, the second worst point in the past year:
and the 3rd worst comparison in over 50 years:
To give a more complete picture, since mortgage rates (gold, inverted in the graph below) lead sales (blue): which in turn lead prices (red), below I show all of them YoY:
The above graph shows not only the impact of increased mortgage rates, but how homebuilders’ strategy of coping by lowering prices by the biggest percent in 50 years, has affected the market. All things being equal, continued higher mortgage rates should have led to continued negative YoY sales. But by lowering prices aggressively (as seen on the red line), as well as mortgage adjustment programs, homebuilders have managed to turn sales higher YoY.
Should the Fed start lowering interest rates, as widely expected, sales should continue higher YoY, while pricing discounts will start to vanish.
Higher new home sales, with lower prices in May: good! Angry Bear by New Deal democrat
It has always seemed to me that Home Pricing is governed muchly by the Greater Fool Principle, that no matter what you pay, when it’s time to move on you’ll be able to find someone, somewhere nearby, who will pay more than you did.
Maybe not. But if you bought a long time ago, probably you will. Just not enough to move to a better place, maybe just a smaller one, which is already what you were looking for.
(The smaller ones, new, just down the street, have been going for way more than what I’ve always though our house would be worth.)
@Fred,
” . . . no matter what you pay, when it’s time to move on you’ll be able to find someone, somewhere nearby, who will pay more than you did.”
Maybe if you have an infinite amount of time. When it came time for my parents to sell their house and cabin on the Battenkill in rural Washington Co,NY, they had few interested buyers. They managed to sell, but certainly not for more money in real dollars than they bought for, especially considering all the improvements.
A lot of people just look at the purchase price of the house and the sales price (often decades later) and consider the difference to be profit. They ignore inflation. They ignore the mortgage interest. They ignore the insurance and property taxes. They ignore all the repairs and improvements. Not sure who is the greater fool in this case.
For most folks, owning your own home is not a great investment, although for most folks, it’s most of their estate. Of course, you have to live somewhere, so the comparison is between buying and renting. For those who say “why should I pay rent when I can own,” my answer is “if you have a mortgage, you’re just paying rent to a bank instead of a landlord.” Owning your own home is, more than anything, a quality of life issue.
Never having sold a house, really, I am only speculating.
There are exceptions no doubt. You just don’t want to be one.
The first one we bought was a condo that our employer ‘sold’ for us as part of a relocation. And we’re still living in the far better place we bought subsequently.
(On that deal, it was totally profit-less.)
@Fred,
We bought our house in St. Louis for $100K in 1987, sold it in 2022 for $315K. Once you subtract the 7% real estate agent fee and correct for inflation, the interest on a 20 year mortgage, the tens of thousands in improvements and taxes/insurance, it was a money-loser on the spreadsheet. We did like the house, it was close to our jobs and our daughter went K-12 in public schools, but I don’t know how to monetize those positive externalities.
‘more money in real dollars’
Ah, there’s the rub. More money, sure, just not in real dollars.
It’s that time value of money thing again. Dang!
Joel:
I can live with the improvements and the money down. High interest rates are a killer and they can not be replaced unless your home explodes in value and there are takers. We have a rat in the mid twos and even then, half of your payment goes to interest. And yes, the taxes and insurance come into play.
As much as I enjoy our house, and in some sense we did not pay that much for it (but it was about twice as much as our condo cost), we have put a lot of money into it since, and had much trouble with the roof over the first couple of decades we lived here. The builder was no help. Much anxiety for us, before it got sorted out.
(It turned out not to be the roof. It was the chimney, all along.)
Homeownership brings a lot of ‘responsibilities’ & expenses that one may not expect.
Personally, I never thought of it as an investment. It’s just housing, and one wants it to be comfortable. Mrs Fred seems to think we would get a lot of money for it if/when we ever decide to leave, but we both agree that the utter hassle of doing that makes it unlikely we will. Leave it to our kids to sort out.
Exactly.
I do not consider my houses to be investments, just places to live comfortably. New carpet or the kitchen remodel isn’t a maintenance item, but something I needed to change to make the place more to my liking. If I make nothing at all I have had a nice place to live at a cost I found acceptable.
Jane:
I agree. Updating or adding amenities is a big deal. If it makes us more comfortable. I am all for it.
Renting vs Buying: Which is Actually Better? (2023 Study)
Today’s Homeowner – December 22, 2023
Long-term renting is currently cheaper than homeownership in 46 of the 97 major cities we researched.
69% of renters believe that renting is the best financial decision for them right now.
Renters will spend an average of $1.26 million over the course of 30 years while homeowners will spend $1.30 million.
Just 9 out of the 97 cities we analyzed had monthly mortgage payments that were cheaper than monthly rental payments.
… In at least seven major cities in California, long-term renting is cheaper than owning a home. Renters save $900,540 on average in California over a 30-year period. in at least 51 U.S. cities. On average, owners saved $175,811 over a 30-year period. …
… There are still many places in the U.S. where buying a home is cheaper than renting over a 30-year period. Our list of the top 10 cities where owning is cheaper features geographically diverse locations, including cities on the East Coast and in the South and Midwest. New York City is one surprising location where homeowners save over renters— owners will spend $2.1 million on average over 30 years while renters will spend $2.4 million. …
@Fred,
“69% of renters believe that renting is the best financial decision for them right now.”
I totally understand. We rented all five years we were grads students and all five years we were postdocs. I was 32 and my wife was 30 when we “bought” (mostly financed) our first house. Lived in it for 35 years. Terrible financial investment, but we liked the house and there were several positive externalities that couldn’t be monetized on the spreadsheet. Too many people get stampeded into buying, IMO. It’s called “the American dream,” but in too many cases, it’s more like the American hallucination.