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This buildup of completed single-family houses is a factor in resolving the price dislocations of the overall housing market.
By Wolf Richter for WOLF STREET.
Inventory of new completed houses jumped by 46% year-over-year, and by over 200% since mid-2021, to 104,000 houses in August, the highest since November 2009, according to Census Bureau data today.
About half of all new houses sold are in various stages of construction currently, many of them in the early stages of construction or even before construction begins, and buyers have to wait for (sometimes many) months before they can move in. Finished houses are essentially move-in ready. But builders have tied up a lot of capital in them, and they have to be sold quickly. Inventory of completed houses encourages builders to make deals.
This buildup of spec houses is what the overall housing market needs the most, and it will help resolve the massive dislocations in prices that have befallen the housing market years ago.
Inventories of houses at all stages of construction – from not yet started to completed – rose to 470,000 houses, right up there with August-October 2022, and they’re all the highest since 2008. Supply rose to 8.2 months.
Sales of completed houses jumped by 53% year-over-year to 29,000 houses, not seasonally adjusted. Even at this brisk rate of sales, supply of unsold inventory of completed houses rose to 3.6 months. Rising inventory and supply are good – they’re what this housing market needs the most. Potential sellers of existing homes (the homeowners) need to compete with new houses.
Sales of houses at all stages of construction rose by 11.5% year-over-year to about 58,000 in August, not seasonally adjusted. This was up by 4% compared to August 2019.
By comparison, sales by homeowners of existing homes have collapsed to the worst levels of the Housing Bust, even as supply has spiked. Homebuilders are taking advantage of homeowners’ refusal to adjust their price expectations to reality.
Prices of new houses have dropped to prices of resale houses.
Contract prices of new single-family houses at all stages of construction dropped in August from July, are down by 4.6% from a year ago, and are down by 8.8% from the peak in October 2022.
However, these contract prices do not include the substantial costs of mortgage-rate buydowns, which have become the primary incentive that big builders are using to make deals. For example, Lennar disclosed in its Q2 filings that mortgage-rate buydowns cost $47,100 per house on average.
Homebuilders are also building houses at lower price points – smaller, less fancy houses with less fancy appliances and finishes – and they’re adding incentives, such as free upgrades.
The median price of new houses (based on contract prices) is subject to large monthly up-and-down squiggles that are often heavily revised, so we focus on the six-month moving average of the median price, which includes all prior revisions, and irons out the monthly squiggles.
This six-month average of the median price declined to $421,553 in August, down by 1.6% year-over-year, down by 3.8% from the peak in October 2022, and below where it had been in June 2022. But remember, the costs of mortgage-rate buydowns are not included here:
New-house prices have dropped roughly to the level of existing-house prices – not even including the costs of mortgage-rate buydowns.
The six-month-average median price of new houses (red in the chart below) dropped to $421,533 while existing-house prices dropped $422,100 in August (blue):
Homebuilders take an ever-larger share from homeowners.
Sales of new single-family houses as a percentage share of total single-family house sales (= new + existing) have been above 17% in July and August. This is the share that new single-family houses used to have in the decades before the Financial Crisis, but haven’t had since (except for June 2020).
The big homebuilders, the pros in the housing market, have figured out how to deal with this market and make deals. Unlike homeowners sitting on vacant houses waiting for whatever, they have to build and sell houses to keep their revenues flowing and to keep their businesses growing, and they’re doing that.
This aggressiveness by homebuilders to supply the market with competitively priced houses, and then to push sales with mortgage-rate buydowns and other incentives to make deals will help resolve the pricing dislocation that has befallen the housing market years ago.
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The post Here Comes the Inventory of New Spec Houses, Highest since 2009. Sales Jump, Builders Take Share from Homeowners appeared first on Energy News Beat.
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