Staggering. Average price for new homes in May was $406,400, with a median price of $345,000.
In the new-home market, rather than re-leveling the playing field to make homeownership an option for more working people, the prospect of owning a new home is growing more and more difficult.
This is not to point a finger at builders, but rather to assert one more time that housing has not, since the end of the Great Recession, begun to function in a way that is inclusive of exactly the buyers who'd likely sustain the housing and economic recovery.
Supply and demand are out of whack. Supply constraint--namely in the form of how much time it takes and how costly it is to bring new lots on line, and in how volatile rates and schedules for trade labor have become--have created a bottleneck.
Here's one way to look at demand, from Redfin, whose Housing Demand Index topped out in May at a record high. Redfin analyst Tim Decker writes about the squeeze between demand and available supply here:
Compared to April, the seasonally adjusted number of buyers requesting tours was up 9.0 percent in May, and the seasonally adjusted number of buyers writing offers was up 15.4 percent. In a stark contrast to the surge in demand, inventory was 11.8 percent lower in May than a year earlier across the 15 metros covered by the Demand Index. May marked the 24th consecutive month of year-over-year inventory declines despite a 4.2 percent increase in the number of homes newly listed for sale. This means that people are buying up homes faster than they are being listed.
A real problem, and one that impacts the broader economy to a greater degree than resales of existing homes is that not enough new homes are being built. Trulia chief economist Ralph McLaughlin puts it this way, noting that even as existing home sales are suppressed, new home sales as a share of the total are about half their historical levels:
New home sales per 1,000 U.S. households was 5 in May, which is only 68.8% back to normal.
Calculated Risk analyst Bill McBride tracks the ratio of new home sales to existing home sales, and, here, shows that the current ratio is about one new home order for every 9 resales, vs. a historical norm of about one to five. McBride notes:
I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.
However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.
The good news is that as hard as it is to bring new home communities online--especially given the crush of local entitlements, hook-up fees, infrastructure requirements, and a time-warp of jurisdictional permit cycles--more are on the way, and these should begin to bring average and median costs down as the volume of sales in newer, more attainably-priced communities picks up.
National Association of Home Builders chief economist Rob Dietz draws attention to this dimension in his take on the recent new home sales report from HUD and the Census Bureau. Dietz writes:
On a year-over-year basis, homes under construction in inventory have increased by 6% over the last year. Completed, ready-to-occupy homes (there are only 62,000) are up 5% since May 2016. In contrast, homes not-yet-started listed in inventory have increased 43%, from 37,000 in May of 2016 to 53,000 last month. Sales of homes not-started construction have also been rising. These factors are consistent with growing housing demand.
Still, new housing has so far failed to kick in with entry-level buyers as it normally does after a downturn, effectively pricing out a segment of the market typically needed to keep the economy going at a healthy pace. What's the risk?