Category Archives: real estate

Soaring Prices Drive Market Cap of New Homes Higher in April 2022

Political Calculations' initial estimate of the U.S. new homes market cap for April 2022 is $31.37 billion. That figure is 1.7% higher than March 2022's revised nominal market cap of $30.86 billion.

The following chart shows what that new record looks like in the context of the new home market cap history since January 1976:

Trailing Twelve Month Average New Home Sales Market Capitalization in the United States, January 1976 - April 2022

Soaring prices are the primary driver of April 2022's increase in the market cap for new homes sold in the U.S. In the two years since the Coronavirus Recession bottomed in April 2020, the trailing twelve month average of new home sale prices have increased by 35.2%. Meanwhile, the trailing twelve month average number of new home sales continued its upward trend in April 2022, but the increase in this component of the market capitalization math is much smaller than the contribution from the increase in new home sale prices.

New home sales ticked up in April 2022:

Trailing Twelve Month Average of the Annualized Number of New Homes Sold in the U.S., January 1976 - April 2022

Average sale prices jumped to $516,283:

Trailing Twelve Month Average of the Mean Sale Price of New Homes Sold in the U.S., January 1976 - April 2022

The trailing twelve month average for new home sales removes the effects of annual seasonality from this data, while the math helps smooth the month-to-month noise in new home sale prices, making it easier to identify trends for both data series. Since new home sales are counted toward GDP when their sales contracts are signed, a rising trend in the market cap for new homes represents an economic plus for the U.S. economy. The National Association of Home Builders estimates new home sales contribute 3% to 5% of the nation's Gross Domestic Product.

New Lows for Affordability of U.S. New Homes

New homes in the U.S. reached new lows for affordability in March 2022.

The following chart shows the raw affordability of new homes at a new record low, as the increase in median household income for March 2022 was much smaller than the increase in the median new home sale price recorded for the month.

Relative Affordability of New Home Prices | Annual: 1967-2020 | Monthly: December 2000 - March 2022

March 2022's median household income was just 17.5% of the value of the median new home sold during the month.

At the same time, a more refined measure of affordability that takes the average 30-year conventional mortgage rate for March 2022 into account shows the mortgage payment for the median new home sold rose sharply with respect to the typical income earned by an American household to levels not seen since the housing bubble of the first decade of the 21st century.

Mortgage Payment for a Median New Home as a Percentage of Median Household Income, January 2000 - March 2022

The average mortgage payment for a median new home sold in March 2022 represents 33.8% of the income for the median American household.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 26 April 2022. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 26 April 2022. 

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 29 April 2022.

Surge of U.S. New Homes’ Market Cap in March 2022

A combination of record high new home sale prices and an upward trend in the number of new homes sold as buyers raced to beat rising mortgage rates caused the market capitalization of the U.S. new homes market to surge in March 2022.

In doing that, the market cap of new homes in the U.S. surpassed its previous nominal, non-inflation adjusted record. Political Calculations' initial estimate of the U.S. new homes market cap is $31.19 billion. That figure is 0.45% higher than the previous record of $31.05 billion set in August 2005 during the peak of the first U.S. housing bubble.

The following chart shows what that new record looks like in the context of the new home market cap history since January 1976:

Trailing Twelve Month Average New Home Sales Market Capitalization in the United States, January 1976 - March 2022

March 2022 also saw significant upward revisions for the number of new homes sold in January and February 2022, which were coupled with small adjustments in the average new home sale prices during these months. Overall, the trailing twelve month averages for both new homes sales and average new home sale prices continued their recent upward trends.

Sales of new homes rose in March 2022:

Trailing Twelve Month Average of the Annualized Number of New Homes Sold in the U.S., January 1976 - March 2022

Average sale prices topped $500,000:

Trailing Twelve Month Average of the Mean Sale Price of New Homes Sold in the U.S., January 1976 - March 2022

The trailing twelve month average for new home sales removes the effects of annual seasonality from this data, while the math helps smooth the month-to-month noise in new home sale prices, making it easier to identify trends for both data series. Note the number of new home sales is still well below its recent November 2021 peak. The market capitalization of new homes sold in the U.S. has broken its nominal housing bubble era record mainly because of the contribution of rapidly inflating new home sale prices.

Since new home sales are counted toward GDP when their sales contracts are signed, a rising trend in the market cap for new homes represents an economic plus for the U.S. economy. The National Association of Home Builders estimates new homes sales represent 3% to 5% of the nation's Gross Domestic Product.

Raw Affordability of New Homes Holds Steady at Record Low

The raw affordability of new homes held steady at record low levels in February 2022. While median household income increased, that increase kept pace with the ongoing escalation of new home prices.

The following chart confirms that assessment. We find median household income stayed at a record low of 17.8% of the median sale price of a new home in February 2022, effectively tying for the lowest level of affordability by this measure on record.

Relative Affordability of New Home Prices | Annual: 1967-2020 | Monthly: December 2000 - February 2022

Extending out several more decimal places, January 2022 edges February 2022 for having the lowest-ever level of raw affordability for new homes in the U.S.

Taking the average 30-year conventional mortgage rate for February 2022 into account however, we find the mortgage payment for the median new home sold in February 2022 dipped slightly as a share of the typical income earned by an American household. Alas, not enough to break the uptrend that began after the Coronavirus Recession ended in April 2020. The next chart shows that outcome:

Mortgage Payment for a Median New Home as a Percentage of Median Household Income, January 2000 - February 2022

The average mortgage payment for a median new home sold in February 2022 represents 29.8% of the income for the median American household.

To close, we have a bonus chart for this month's analysis, which visualizes the trailing twelve month averages for both median new home sale prices and median household income.

U.S. Median New Home Sale Price vs Median Household Income | Annual: 1999-2020 | Monthly: December 2000 - February 2022

Notice how new home sale prices suddenly accelerated after March 2021, when President Biden's American Rescue Plan stimulus checks started flooding into the U.S. economy? The median sale price of new homes has increased by $56,975, far outstripping the $4,611 increase in median household income. But that doesn't consider the effect of the additional inflation that has eroded the purchasing power of the typical American household in the period since.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 25 February 2022. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 23 March 2022. 

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 23 March 2022.

Market Cap of U.S. New Home Sales Flat in February 2022

After a positive January, the market capitalization for new homes sales in the U.S. dipped ever so slightly in February 2022. Political Calculations' initial estimate of the overall market capitalizaton of the U.S. new home market is $27.47 billion, holding essentially flat with respect to January 2022's revised estimate of $27.49 billion for the rolling 12 month average.

Trailing Twelve Month Average New Home Sales Market Capitalizaton in the United States, January 1976 - February 2022

February 2022's barely noticeable dip is the result of downward data revisions in previous months. The month itself was one of the strongest in the past year, seeing both rising average prices and number of sales. The following two charts visualize the trailing twelve month averages of the U.S. new home market's underlying annualized sales and average price data.

New home sales rose in February 2022:

Trailing Twelve Month Average of the Annualized Number of New Homes Sold in the U.S., January 1976 - February 2022

New home prices continued escalating:

Trailing Twelve Month Average of the Mean Sale Price of New Homes Sold in the U.S., January 1976 - February 2022

New home sales are counted toward GDP when their sales contracts are signed, so a flat or falling trend in the market cap for new homes represents an economic headwind for the U.S. economy. According to the National Association of Home Builders, new homes sales average roughly 3% to 5% of the nation's GDP.