Cut the price, and they will not come? Homebuilders, in a tough market, compete with homeowners who are still delusional.
By Wolf Richter for WOLF STREET.
Homebuilders are trying all kinds of stuff to get sales going in this environment of 7%-plus mortgage rates, including cutting prices, building at lower price points, piling on incentives (such as free upgrades), and the biggie, buying down mortgage rates, which can get expensive for builders. Neither incentives nor mortgage-rate buydowns are reflected in the prices of homes sold, and yet prices have dropped, and sales have dropped too below 2019 levels, and inventory increased, and months supply jumped. For homebuilders, who cannot sit out this market because their business is to build and sell homes no matter what the market does, it’s not an easy environment.
The median price of new single-family houses sold in August dipped by 1.4% from July, by 2.3% year-over-year, and by 13.4% from the peak in October, to $430,300, back where it had first been in November 2021, according to data from the Census Bureau today.
Median-price data jumps up and down a lot, but you can see in the chart that after dropping a bunch in early 2023, it has now roughly stabilized over the past five month at these lower levels. But these prices do not include the costs for builders of mortgage-rate buydowns and other incentives.
The seasonally adjusted annual rate of sales of new houses fell by 8.7% from July, to 675,000 houses, which was down by 3.4% from August 2019, but was up 5.8% from the plunge last August.
Actual sales – not seasonally adjusted, and not annual rate of sales – fell to 54,000 houses, the lowest since December last year, down by 5.3% from 2019, though compared to the sales plunge a year ago, it was up by 5.9%.
So despite lower prices, ample supply (more in a moment), and large-scale mortgage-rate buydowns, sales remain below the pre-pandemic levels and well below the activity in 2021:
Inventory for sale in all stages of construction rose to 443,000 houses. And that’s a good thing for prices, which are still way too high and would need to come down a whole lot more to make sense, given these mortgage rates:
Supply, at the current rate of sales, jumped to 7.8 months, which translates into more than ample supply.
New houses now compete with used houses on price. Homebuilders have to build and sell houses no matter what the market is. And they responded by offering deals, though parts of their deals are not reflected in prices – such as mortgage-rate buydowns and incentives – while homeowners who are trying to sell are still delusional, hence the plunge in sales of existing homes.
And we can see these dynamics in the median price of new single family houses and existing (“used”) single-family houses, whose sales have plunged to the lows of the Housing Bust and the lockdown:
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