New home sales rebound as resales dip
Wednesday, July 24, 2019
In a pattern all-too-familiar to builders and realtors, housing market activity flipped again in June, with the scales tilting up for new homes and down for resale homes. Sales of new homes surged in June following two consecutive months of dismal declines.
On the other side of the market, tight inventories and rising prices put a dent in sales of existing homes, which similarly had trended upward in May after two previous months of negative growth. Despite mortgage rates remaining relatively low, affordability and availability continue to be the primary factors influencing consumers’ willingness to purchase a home.
On the whole, June’s figures were mixed for homebuilders. New home sales rose 7% compared to May and were up 4.5% from June 2018. That good news was tempered by the fact that the poor sales figures for April and May were revised downward, raising the possibility that June’s figures may not be as robust as estimated.
At the same time, construction of new homes continues to lag. New home starts (by number of units) declined 0.9% for the second month in a row, although they are up 6.2% over the same time last year. Single-family starts rose slightly, 0.4%, but well off the 3.7% increase in May.
The situation is not likely to improve in the near future, given that permit requests in June fell 6.1%, after a 9.5% drop in May, and are 6.6% behind last year’s total. Completions, too, dropped by around 5% for the second month and are 3.7% below June 2018’s figures.
Builders have been piling on incentives, including driving down prices, to lure prospective buyers into the purchase of new home. Data from the Mortgage Bankers Association finds mortgage applications for new home purchases increased by 17.9% in June compared to the previous year, although they decreased by 14% from May, perhaps due to heightened economic uncertainty early in the month.
The average price of a new home sold in June was down nearly $10,000, at $368,600. However, the median price was up slightly, at $310,400, with homes at lower price points in higher demand.
Meanwhile, prices of existing homes keep fluctuating as inventories and mortgage rates seesaw between desirable and not-so-desirable.
Real estate brokerage website Redfin reports the median home price (both new and resale) in the 85 metro areas it tracks grew for the second month by 1.7% in June and was up 3.4% from the same time last year, coming in at $321,200. That is considerably higher than the median price for existing homes cited by the National Association of Realtors for the month of June, $285,700, which was up nearly 3% from May and 4.8% from June 2018.
Those price increases along with a short supply of desirable houses dampened sales of existing homes in June. Overall, sales slipped 1.7% compared to May and are down 2.2% from the previous June. Sales of existing single-family homes slid 1.7% for the month and are off 1.7% from a year ago. The median price of an existing single-family home sold in June remained flat, at $288,900, but was up 4.5% year-over-year.
Concerns about the economy, employment and rising prices tempered consumer sentiment in June. The Conference Board announced that its Consumer Confidence Index fell 10 points in June to its lowest level since September 2017.
Fannie Mae stated that its Home Purchase Sentiment Index held fairly steady from May’s near-record high but showed signs of weakening. The portion of respondents who said now is a good time to buy a home dipped 4 points, and more respondents expressed uncertainty about the job security and stability of household income. Those shifts were in part offset by an 8-point boost in the portion who said they expect mortgage rates will go down later in the year.
It is likely that these figures are an indication that some prospective buyers are in a wait-and-see mode, anticipating that both the economy and mortgage rates will improve later in the year. Builders seem to think so. In reporting its Housing Market Index for the month of July ticked up a point from that of June, the National Association of Home Builders stated builders are seeing solid demand for single-family homes, as reflected in June’s new home sales figures.
However, Robert Dietz, NAHB’s chief economist, cautioned that home prices continue to outpace incomes and construction challenges are stretching builders’ ability to deliver homes at price points affordable to many would-be buyers.
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