Political Calculations initial estimate of the market capitalization of the U.S. new home market is $24.24 billion in December 2022. That's 18.9% below the revised December 2020 peak of $29.88 billion, and month-over-month, represents a 3% reduction from November 2022's revised estimate of $24.99 billion (November 2022's initial estimate was $25.35 billion).

Here is the latest update to our chart illustrating the market capitalization of the new home market, which now covers 47 full years worth of monthly data from January 1976 through December 2022.

The following two charts show the latest changes in the trends for new home sales and prices:

Sales kept trending downward:

New home prices are now falling:

Reuters misreads what's going on in the new home market:

Sales of new U.S. single-family homes increased for a third straight month in December as mortgage rates continued to decline, offering hope that the struggling housing market was starting to stabilize.

The problem with that assessment is that it only partially takes into account what's happening with how new home sales data from recent months is being revised. Since August 2022, the Census Bureau has been reporting substantial reductions in the number of sales with each revision. Here's is how these numbers have been changing each month, from initial through fourth estimate (these are seasonally adjusted annualized figures, indicating thousands of new homes sold):

• Aug 2022: 685, 677, 661, 646
• Sep 2022: 603, 588, 559, 550
• Oct 2022: 632, 605, 598
• Nov 2022: 640, 602
• Dec 2022: 616

The rightmost figures are either the final or most recent estimate. Based on this recent pattern for revisions, we anticipate December 2022's new sales total will be revised significantly lower than its initial estimate, almost certainly dropping it below the estimate for October 2022 and with a high probability of being reduced below November 2022's estimate.

Here's more from Reuters' report:

The Federal Reserve's fastest interest rate-hiking cycle since the 1980s has driven housing into recession. Falling mortgage rates have, however, raised hope that the housing market could soon stabilize, though at depressed levels.

The 30-year fixed mortgage rate declined to an average 6.15% last week, the lowest level since mid-September, according to data from mortgage finance agency Freddie Mac.

The rate was down form 6.33% in the prior week and has dropped from an average of 7.08% early in the fourth quarter, which was thi highest since 2002. But it remains well above the 3.56% average during the same period last year.

The median new house price in December was $442,100, a 7.8% increase from a year ago.

These figures refer to the raw figures provided in the U.S. Census Bureau's latest monthly report on new residential sales. That report also indicates the average new home sale price for December 2022 was $528,400.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 26 January 2023. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 26 January 2023. 

If it wasn't for October 2022's all-time record low for affordability, the cost of owning a new home in November 2022 would itself have set a new record. As it is, the cost of the mortgage payment to live in the median new home sold in November 2022 would consume 46.3% of the wages and salaries earned by a household in the middle of all income-earners in the U.S. That ranks it second behind October 2022's revised all-time high of 48.6%.

Meanwhile, the ratio of median household income to the median new home sale price dropped to an all-time record low of 17.06%. The following chart shows that development for this raw measure of the relative affordability for new homes.

Together, the three months of September through November 2022 represent the lowest level of affordability in U.S. history, with each month exceeding the peak of unaffordability achieved during the first U.S. housing bubble in April 2006.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 23 December 2022. 

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

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 2 January 2023.

The U.S. new home market enters 2023 in distress. Political Calculations' initial estimate of the market capitalization of new homes for November 2022, the data for which was released just before the holidays, is $25.35 billion. This time-shifted, trailing-year average is 15.8% below its December 2020 peak in nominal terms and is 25.5% below its inflation-adjusted peak.

The annotations in this chart emphasize the role and timing of inflation and rising interest rates in contributing to the shrinking market for new homes. That shrinking market contributes to economic headwinds in the U.S., where a healthy new home market can account for 3-5% of the nation's GDP. For longer term context, here are links to the latest updates to our charts tracking the market cap for new homes and its component price and sales data since January 1976.

• Trailing Twelve Month Average New Home Sales Market Capitalization in the United States
• Trailing Twelve Month Average of the Mean Sale Price of New Homes Sold in the United States
• Trailing Twelve Month Average of the Annualized Number of New Homes Sold in the United States

We'll take a separate look at the impact of inflation and rising interest rates for new homes on their affordability in the very near future.

References

U.S. Census Bureau. Monthly New Residential Sales, November 2022. [PDF Document]. Accessed 23 December 2022.