Construction materials for a new home being built by CastleRock Communities in the Sunfield neighborhood of Buda, Texas, U.S., will be available on Wednesday, November 10, 2021.
The price is too high at some point. Potential buyers of new single- family homes may be seeing that.
Sales of those homes in November came in well below expectations. The sales numbers for October were revised to the lowest level since the beginning of the Pandemic.
The median price of newly built homes sold in November rose nearly 19% from the previous year. The supply of new homes rose. Observers say that rising inventory should push prices down. With the low inventory of existing homes, prices in newly built homes are going up. How high is too high?
Ian Shepherdson, chief economist at Pantheon Macro, wrote that the rapid increases in existing home prices are putting extra upward pressure on new home prices.
According to the National Association of Realtors, the prices for existing homes sold in November were up just over 13% year over year, a slight increase from the annual gain in October.
The inventory of existing homes is very low, with barely a 2-month supply at the current sales pace.
The mix of homes selling is a factor that skews the median higher. S&P Case-Shiller shows prices up 20% from a year ago.
The price of a new home is going up more and more because there is not as much available on the resale market. The costs are being passed onto buyers.
The cost of lumber has gone up again after falling over the summer. At the beginning of November, it was double what it is now.
Homebuilders have slowed sales due to supply chain issues, as they don't want to sell a home that they can't deliver on time. Homebuilder Lennar reported disappointing quarterly numbers earlier this month, citing continued housing supply shortage driven by limited entitled land, labor and supply chain constraints.
The builders are more bullish than the Realtors because they are expecting a lower existing home sales next year. In December, builder sentiment rose to its highest level of the year. The Census survey has a wide margin of error, so it is possible that the sales numbers will be revised.
We would not be surprised to see the October and November numbers revised up a lot. Shepherdson said that the rising trend in mortgage applications probably is a better guide to the underlying state of demand in the housing market.
The Mortgage Bankers Association said that mortgage applications to purchase a newly built home were down 2% in November from a year ago. The drop in actual sales is much larger.
If mortgage rates continue to rise, buyers will have less purchasing power and be unable to afford what is for sale. That could cause builders to lower their prices. Prices lag sales by about six months, and sales are coming down, so a real correction may be too strong a prediction for now.
