Higher new home sales and rising homebuilders’ optimism foretells a strong summer sales season if builders and existing-home inventories don’t run out of housing stock. More new homes could also soften what is being termed a rolling recession with some sectors (such as manufacturing) faltering and other sectors (e.g, services ) still growing.
Builders must pick up the pace for that to happen, however.
Sales of new single‐family houses in March 2023 were at a seasonally adjusted annual rate of 683,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.
“This is 9.6 percent (±15.2 percent) * above the revised February rate of 623,000, but is 3.4 percent (±12.7 percent)* below the March 2022 estimate of 707,000. The seasonally‐adjusted estimate of new houses for sale at the end of March was 432,000. This represents a supply of 7.6 months at the current sales rate.”
Census.gov
Builders remained cautiously optimistic in April, as limited resale inventory helped to increase demand in the new home market. Single-family builder confidence in April rose one point to 45, according to the NAHB/Wells Fargo Housing Market Index.
Currently, one-third of housing inventory is new construction, compared to historical norms of around 10%. More buyers looking at new homes, along with the use of sales incentives, have supported new home sales since the start of 2023. Builders note that additional declines in mortgage rates (to below 6%) will further boost demand.
“A lack of resale inventory combined with many builders offering price incentives helped to push new home sales higher in March,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB). “However, sales are down 3.4% compared to a year ago because of the shortage of electrical transformer equipment and building material price volatility.”
Whereas pending home sales of homes under contract but not closed edged down. The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – waned by 5.2% to 78.9 in March. Year over year, pending transactions dropped by 23.2%. An index of 100 is equal to the level of contract activity in 2001.
“The lack of housing inventory is a major constraint to rising sales,” said NAR Chief Economist Lawrence Yun. “Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally.”
Chief economist Yun believes mortgage rates will improve the sales outlook by continuing to decline below 6 percent into next year. The 30-year conforming fixed rate is even obtainable at 5.75 percent for one origination point in California.
This is while the initial estimate of first quarter 2023 GDP growth was 1.1 percent, close to the consensus by economists. The problem is demand has far exceeded supplies, keeping housing prices and inflation too high and the Fed unhappy.
The lack of existing supply is a problem in all economics sectors, which may mean the Fed will continue to boost interest rates until markets catch up, though they’ve said they will pause for the rest of the year after another May 0.25 percent increase.
So a rolling recession could mean a bumpy ride for consumers who now must choose whether to buy now or wait until interest rates and inflation continue to moderate.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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