Third Consecutive Decline for New Home Sales

 


Existing home sales, which are recorded at closing, came in at a seasonally adjusted annual rate of 5.54 million in December, a 10.8% increase from December 2018. Regional sales growth was broad-based on an annualized basis. The South and the West posted double-digit sales growth, while the Midwest and Northeast reported gains of 9%. That translated into sales price growth in all regions, bringing the national median sales price to $274,500, up nearly 8% from a year ago.

The supply of housing available for sale remains constrained, with the unsold existing home inventory sitting at a three-month supply. Analysis by realtor.com estimates that the housing market is short nearly four million homes. That would take builders about five years to replenish if they don’t ramp up more aggressively. A sharp consolidation in the home builder market has limited the number of builders who are currently in business, while labor shortages remain acute, especially for highly skilled carpenters and other specialty contractors including plumbers.

Wall Street investors flipping homes for rentals in the wake of the housing bust is another constraint on inventory, especially for entry-level homes. In December, sales of homes under $100,000 fell almost 8%, while all other price categories went up.

 

 

 

Bottom Line

 

Mortgage applications to purchase a home surged in the first two weeks of the year, which will boost buyer activity now, borrowing sales from the traditional spring selling season. The risks are two-fold: 1) Tight inventories are pushing up prices, which could lock out first-time buyers from the market again as we move into late Spring, and 2) A major correction in financial markets associated with the coronavirus could temporarily sideline potential buyers.

 

 

 

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Copyright © 2020 Diane Swonk – All rights reserved.  The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.

 

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