As homebuilders got aggressive with mortgage-rate buydowns, incentives, and lower prices, sales held up, unlike sales of existing homes, which collapsed.
By Wolf Richter for WOLF STREET.
With inventories of new single-family homes for sale very high – more on those in a moment – the big homebuilders have been aggressive in their efforts to sell the homes they’ve completed, and those they’re building and planning to build, because they’re in the business of building houses, and they have to try to keep their stocks from collapsing, and they cannot just stop building just because inventories are high or because the housing market is tough.
So they’re lowering prices, they’re building at lower price points, they’re throwing lots of incentives at potential customers, and most importantly, they’re buying down mortgage rates, which is costly for builders but less costly than just cutting the contract price far enough to get the payment down to the same level.
Lennar, for example, disclosed in its 10-Q filing that the total cost of incentives, including mortgage rate buydowns, rose to $60,000 per house sold on average in Q1, up from $50,600 a year ago, to 12.9% of its average sales price. And those incentives are in addition to any actual price cuts.
The sales prices in the contracts between the homebuilder and homebuyer do not include the costs of the mortgage rate buy-down and some other incentives, such as free upgrades. It is these contract prices that are tracked by the Census Bureau, and even though they don’t include the costs of mortgage-rate buydowns and some other incentives, they have been zig-zagging lower since late 2022.
In April, the median contract price, at $407,200, was down by 2.0% year-over-year and by 11.5% from the October 2022 peak, according to the Census Bureau today.
The six-month average, which irons out the month-to-month squiggles, declined to $412,300, the lowest since February 2022:
Inventories for sale are sky-high, especially in the South and West.
Single-family houses for sale at all stages of construction was revised up for March to 500,000 today, from the originally reported 493,000. In April, inventory was 497,000 houses, according to the Census Bureau today.
Inventories over the past four months, after revisions, have been right at 500,000, the highest since November 2007, when they were on the way down as the industry was near collapse during the Housing Bust, and up by 51% from March and April 2019.
Thanks to fairly brisk sales that homebuilders obtain with lower prices, mortgage-rate buydowns, and incentives, this inventory has translated into 8-9 months’ supply over the past six months – rather than double-digit supply.
A glut of new houses for sale is exactly what this overpriced housing market needs the most. And lower prices bring out more buyers. And we’re seeing that.
Inventories of completed single-family houses for sale in April, at 115,000, were up by 31% year-over-year, by 49% from April 2019, and about where they’d been on the eve of the Housing Bust in January 2006.
Homebuilders are very motivated to sell these spec houses quickly because they tie up a lot of capital.
Inventory for sale by region.
In the South, inventories of new houses for sale at all stages of construction in March was revised up to 302,000 (from the originally reported 295,000). And in April, reported today, the were 300,000 new single-family homes for sale, up by 6% from a year ago, and up by 66% from April 2019!
Inventory for sale has been above the Housing Bust peak since May 2024.
The South, dominated by Texas and Florida, is by far the largest market for new houses in the US, accounting for 60% of US inventory, and for 63% of US sales (a map of the four Census regions is in the comments below the article).
Sales rose by 5% year-over-year and by 5% from April 2019, pushed forward by mortgage-rate buydowns and incentives. At least, they didn’t plunge by 25%, as sales of existing homes have done in the US. This translates into 7 months’ supply.
In the West, inventories of new houses, at 115,000, were up by 6% year-over-year, by 40% from April 2019, and where they’d been in March 2006. This represented about 8.2 months’ supply.
In the Midwest, inventory at 50,000 new houses for sale, was the highest since April 2009, up by 19% year-over-year and up by 28% from April 2019.
In the Northeast, inventory for sale, at 33,000 homes, was up by 37% year-over-year and by 18% from April 2019.
Sales in the US overall are decent.
Sales of new houses at all stages of construction for March was revised down to 63,000 signed contracts today, from the originally reported 69,000. In April, as reported today, 68,000 new houses were sold. Despite the down-revision for March, these are decent levels of sales.
April was up by 4.6% from a year ago and by 31% from April 2019. But we don’t get too excited about a strong figure in a first estimate as there is a good chance that it will be revised back into line, as March was.
At these sales, supply rose to 7.3 months in April, from 7.0 months in April 2024, and from 5.2 months in April 2019.
The homebuilders…
Homebuilders have grappled with this market by deploying a mix of lower prices, incentives, and mortgage-rate buydowns, and sales have held up, compared to sales of existing homes that have been at collapsed levels for over two years and just booked the worst April since 2009.
In this environment, stocks of the publicly traded homebuilders have zigzagged down from their highs in September, for example: DR Horton [DHI] -40%, Lennar [LEN] -44%, KB Home [KBH] -41%, and PulteGroup [PHM] -34%.
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The promised map of the four Census regions of the US:
Live in Town of Paradise Valley, AZ in Maricopa County which is one of the fastest growing counties in the country. Maricopa County added 57,000 new residents in 2024 and 38,310 new housing units. That seems like a lot of housing coming online even with the growth overall. City of Phoenix added 16,933 of the new housing units with population of 1.67MM. Prices of houses in close in desirable neighborhoods are still too high. Cromfort Report for May reports active listings for the metro are up 53% y/y but pending and under contract are down about 3% y/y.
How do they provide water for all of these new homes???
I personally will not purchase a home produced from 2020 to current time, Absolute thrown together junk, I dont care what kind of con job “incentives” they threw at Me..
I would prefer existing homes especially from the 40s and 50s built with pride and quality materials.
Have a fantastic Memorial Day Weekend.
I haven’t looked at any of the new builds in detail but my one observation is simply the move to smaller and smaller lot sizes. Convenient for high fiving your neighbor or them passing TP is your run out. Probably can share wifi too so all kinds of advantages. On the positive almost all of them have nice parks close by.
The whole conversation on housing is about how unaffordable and too expensive housing has become, and all you do is bitch about homes that are built to address this issue, that are built on smaller lots and with modern lower-cost construction materials and methods, and you bitch about these houses that are built to address this affordability issue. And those houses are selling because there is demand for them. I just don’t get why you’re denigrating this market and the people that buy those houses.
Houses from the 40’s and 50’s had no insulation, oil or coal fired furnaces, plaster walls, unsafe wiring, no circuit breakers (fuses), and terrible windows. I rented one when I was in college in the late 1960’s and heated my soup cans on steam radiators. No one in their right mind would want one of these unless you tore it down and built over again.
With respect to new, inexpensive builds, what would you build for the common man and his family these days…..$750,000 custom homes? These smaller, tact homes are suited for young family’s getting started, seniors retiring and anyone else priced out of the “better” home market.
The Sun Belt homes are the drivers of the U.S. construction economy. As Wolf points out, Florida and Texas are the gigantic engines of the national economy. The balmy weather of those two states, and the strong business climate, are drawing in thousands of new residents at a time when the Northeast is struggling to hold onto its population…
Anecdotal far shore: Two new houses right behind us, (NOT in flood zone!) both about 3K SF, one ”under contract” before construction begins at $1.3MM, the other unsold at $1.6MM to be completed in August.
Right Price = sold, eh
Delusional sellers (existing) vs Pragmatic sellers (homebuilders), battle of the century. Have my popcorn ready and looking forward to existing sellers getting some much needed does of reality smack into them….maybe some of them have forgotten what chasing the markets down looks like and don’t think it will ever happen again..
For markets with way more limited new builds, consider yourself lucky for now and maybe your stubborness will ride out the price correction…time will tell
Non stop building in Northern California, both in the downtown with taking down failed retail that are torn down to major new areas that will have thousands of units of various types, new schools and more(Innovation Park, former stadium area for Sacramento Kings). Can’t drive up highway 80 anymore without seeing new developments as far as the eye can see. This project obviously has had years of planning but clearly they expect to unload them all 10% will be affordable housing along with combo of residential houses, apartments and condos. I haven’t heard of a lot more jobs coming to the area but a huge part of this area is government.
“I personally will not purchase a home produced from 2020 to current time, Absolute thrown together junk, I dont care what kind of con job “incentives” they threw at Me..”
These monster homes in my area are mostly thrown together junk. After they are built you see repair trucks lined up in front of the homes for 6 months or more fixing all the defects. The windows alone cost $20K right out of the gate to replace as they are not energy efficient.
So new homes make up a larger portion of sales than they have been historically and are being booked at fake prices ~12% above the actual realized price after incentives (and the discount required to sell is increasing). The question is, when will enough “used” home sellers be forced to sell at a lower price point that everyday people realize prices are falling and sales activity dries up even further
A tale of two markets.
For homebuilders who have to sell or they might go under, or at least slow down production, they’re making the math work for the market.
For owners on the resale market, they’re “holdin’ and hopin'” that Daddy Powell will fix their affordability issues and ROI dreams.
But time has value as well. Having to sit on property creates costs. Having to sit on financed property costs more, as do lost opportunity costs or eating commutes. Pick your poison.