Buyers’ strike: new home sales fall 32% in 5 months, unsold inventories are at their highest since 2008, prices fall and construction costs increase the most since 1980
The bottom falls at the lower end. The high-end buyers enriched by the Fed are doing well.
By Wolf Richter for WOLF STREET.
The concept of selling overpriced new homes to everyone is having problems. Sales of new single-family homes in June plunged 6.6% from May and 32% from January’s high, to a seasonally adjusted annual rate of 676,000 homes, the lowest in June since 2018, according to the Census Bureau this morning. This multi-month drop brought home sales back to pre-pandemic levels. And given the boom in apartment and condo construction in urban centers over the past decade, sales of single-family homes remain a fraction of the boom from 2002 to 2007:
Rise in stocks of unsold new homes. Home builders are building for sure, although there are more homes on the market now. Supply jumped to 6.3 months at the current pace of sales, as unsold speculative inventory for sale jumped to 353,000 homes (seasonally adjusted), the most since December 2008:
Prices have fallen and have unwound the peak of recent months. The median price of new single-family homes sold fell 5.0% in June from May to $ 361,000, the lowest since March, unwinding part of the majestic peak that occurred from the summer of last year. In April, the median price was up 22% year-on-year; in May, it was still up 20%; in June, it was up 6.1% year-on-year:
What is happening? Virtually nothing was sold in the less than $ 200,000 price category. The under $ 300,000 price category accounted for just 28% of total new home sales, down from 39% in June of last year. That’s where the volume was, but people who are willing and able to buy a new home under $ 300,000 are out of luck – the prices have moved away from them. And in the face of rising house prices and already grappling with soaring prices for the goods and services they need on a daily basis, they have called a buyers’ strike.
But sales are booming in the high end, in the category of people who have the full love and support of the Fed through its dogma of the wealth effect. Homes priced over $ 500,000 accounted for 28% of total sales in June, up from 23% in May, 15% in June 2020 and 14% in June 2019. At the high end, there was no buyers. strike in June.
At the high end, that’s where the money is. And people who can only afford a house up to $ 300,000 can just go to hell. This is what this new Fed-led money printing economy has turned into.
But the flip side is that demand is falling because there aren’t many potential buyers in the high-end categories.
In addition, there is the whole problem of the shift to working from home that has caused many people to buy a house in another location, a bigger house to accommodate one or two home offices, and this trend may have happened. – being out of breath by now.
And of course, construction costs have increased the most since 1980. OK, you knew this was going to happen. Lumber costs hit ridiculous highs in early May, then plunged, but only partially, and recently rose again. Chicago lumber futures are currently at $ 641 per thousand board feet, still up 60% year-over-year and 72% from July 2019. The contracts steel futures jumped; for example, rebar futures are up 73% year-on-year. The prices of all kinds of other building materials have skyrocketed. And labor costs have increased.
The Commerce Department’s Construction Cost Index, also released today, tracks the costs of building single-family homes under construction, but excludes the cost of land and other non-construction costs. In June, the index rose 0.7% from May. In the past six months annualized, the index has climbed 13.8%. Year over year, the index climbed 11.1%, the biggest year-over-year jump since May 1980:
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