New Home Sales Continue Apace
On the one hand, the housing market seems hotter than ever, with new home sales increasing 21% year over year. But on the other hand, existing home sales look to be topping off after one of the most remarkable run ups in history.
What’s strange about this is that if there is any time for homeowners to sell their home quickly and make a boat load of profit, it’s now. Yet the inventory of existing homes for sale is at historic lows. I get it, if you sell, where do you go? If you’re looking to stay in the same area, then yes, you might not be in a position to take advantage of this sellers market. In fact, you might not even be able to afford the house you currently own if you had to pay today’s prices. So homeowners are standing pat and maybe refinancing to take advantage of this newfound wealth in the form of home equity.
This leaves buyers looking to migrate from urban centers to the suburbs with no other option than to buy new. That’s why new home sales set another high this past month while the months supply of inventory declined to near a record low.
Of all the new single-family home sales, the most impressive increase has been in home sales of houses that haven’t even started construction yet. We’ve seen this story play out before but in the multi-family housing market. In Miami, for example, buildings went unfinished and unoccupied when the housing market collapsed until the declines in price were enough to entice investors – many of them foreign – to swoop up a few dirt cheap properties they can rent to millennials looking to move downtown.
Not long after, those same condos recovered and rents are now reaching unaffordable levels.
The single family home market probably won’t meet the same demise, but the percentage of homes not even started is at it’s highest percentage of total new home sales. That means part of the new home sales number is for houses that haven’t really closed yet. There is no reason to think they won’t but counting a sale before it’s completed can be risky. Building costs are still climbing, mortgage rates are likely to go up from current levels, and economic reopening could slow the flow of people from downtown city centers to Seahaven.
Despite my cautious view of housing due to the changing dynamics of higher mortgage rates, lack of wage growth, and sky high home prices, this has been a boom for homebuilders. Their shares are up 31% and if demand continues at this pace, could continue to outperform the S&P 500.