Category Archives: real estate

U.S. New Home Market Continues Recovery

New Home Under Construction - Source: WikiMedia Commons - https://commons.wikimedia.org/wiki/File:Wood-framed_house.jpg

The U.S. new home market expanded in April 2023. The market capitalization of new homes sold in the U.S. built rose during the month, with a surge in the number of new homes sold offsetting a decline in their prices.

The initial estimate of 683,000 new homes sold during April 2023 represents the highest level of this seasonally-adjusted annual rate recorded since March 2022. That month marked the beginning of the Federal Reserve's series of interest rate hikes, which has coincided with an increase in mortgage rates that have negatively affected the affordability of new homes. The time-shifed trailing twelve month average of new homes sold rose to 638,000 on an annualized basis.

Meanwhile, the average sale price of new homes sold in the U.S. declined to $501,000, with the time-shifted trailing twelve month average dipping below $527,500.

Here is the latest update to our chart tracking market capitalization of new homes sold in the U.S., which shows the improving situation for U.S. new home builders:

Trailing Twelve Month Average New Home Sales Market Capitalization in the United States, January 1976 - April 2023

The chart reveals the time-shifted twelve month average of the U.S. new home market capitalization for April 2023 is $27.94 billion. This figure is an initial estimate, which will be subject to revision during each of the next three months.

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

Sales of new homes increased:

Trailing Twelve Month Average of the Annualized Number of New Homes Sold in the U.S., January 1976 - April 2023

New home prices declined:

Trailing Twelve Month Average of the Mean Sale Price of New Homes Sold in the U.S., January 1976 - April 2023

Here's how Reuters reported the continued recovery for the U.S. new home market in April 2023:

Sales of new U.S. single-family homes jumped to a 13-month high in April, boosted by a persistent shortage of previously owned houses on the market and a sharp decline in prices from last year's lofty levels....

"The evidence continues to accumulate that the housing market may have largely adjusted to the higher level of mortgage rates but the decline in the median home price is consistent with the hypothesis that home builders may be tailoring the construction of new homes towards first-time buyers," said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

New home sales increased 4.1% to a seasonally adjusted annual rate of 683,000 units last month, the highest level since March 2022. March's sales pace was revised lower to 656,000 units from the previously reported 683,000.

Coming out of the first quarter, we were uncertain how strongly the positive momentum in the new home market might continue. The lack of supply of existing homes coming onto the market was a wild card factor we couldn't anticipate, but which is proving to be a positive. It's a welcome development in that the new home market directly boosts Gross Domestic Product. New residential investment, which includes new homes, typically accounts for about 3% to 5% of the nation's GDP.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 23 May 2023. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 23 May 2023. 

Image credit: WikiMedia Commons: Wood-framed House by Jaksmata. Creative Commons Attribution-Share Alike 3.0 Unported License.

The Affordability of New Homes in March 2023

Real Estate For Sale Sign and House</a> by Tony Mariotti of RubyHome via Flickr - https://www.flickr.com/photos/192454804@N08/51092849492

New homes became less affordable in March 2023.

The two driving factors for that change was an increase in mortgage rates during the month and an increase in the median price of new homes sold. The average 30-year conventional mortgage rate rose above 6.5% during March 2023, after recently ticking down to 6.3% a month earlier. Meanwhile, the median sale price for a new home increased to an initial estimate of $449,800, up from $435,900 a year earlier.

The key to affordability however is to also factor in the income earned by the median U.S. household. Here, we find the principal and interest portion of the mortgage payment for a median new home sold in the U.S. during March, assuming it was fully financed (no down payment), would consume over 42% of the income earned by the typical household.

That's an increase over the revised figure of 39.6% in February 2023, confirming new homes became less affordable. The following chart shows the basic mortgage payment for the median new home sold in the U.S. as a percentage of median household income. The chart shows that after dipping to a revised 39.3% in January 2023, the mortgage payment for a median new home sold in February consumed an initial estimate of 40.1% of median household income.

Mortgage Payment for a Median New Home as a Percentage of Median Household Income, January 2000 - March 2023

The month over month change puts the level of unaffordability of new homes in the U.S. fully back above the peak recorded during the housing bubble years in the first decade of the 21st century. It's not as bad as the peak level of unaffordability of 49.7% recorded for October 2022, but there's no question the basic cost of owning a typical new home is out of reach for the typical household in the U.S.

That raises a good question. Where does the threshold of unaffordability begin?

As a general rule, lenders become reluctant to issue mortgages when their basic payments consume more than 28% of gross household income, but that depends on how much other debt a household may have. Lenders will generally avoid offering any financing beyond a level that would increase a household's total debt above 36% of its pre-tax income.

By that reckoning, a home would be considered fully affordable if its mortgage payment consumes less than 28% of household income. In between 28% and 36% is a gray zone, where the answer depends on how much other debt a household has. Any mortgage that consumes more than 36% of a household's income falls completely within unaffordable territory.

The median new home sold in the U.S. has fully qualified as unaffordable for the typical American household in each month since March 2022.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 23 March 2023. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 25 April 2023. 

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 25 April 2023. Note: Starting from December 2022, the estimated monthly mortgage rate is taken as the average of weekly 30-year conventional mortgage rates recorded during the month.

Image credit: Real Estate For Sale Sign and House by Tony Mariotti of RubyHome via Flickr. Creative Commons Attribution 2.0 Generic (CC by 2.0).

Inflation, Interest Rates and the Median New Home Mortgage Payment

House Finance by Tierra Mallorca via Unsplash - https://unsplash.com/photos/bXmuxaT6PjY

Imagine you were out to buy a typical new home home back in March 2021. The median price of a new home sold in the U.S. that month was $359,600. The average 30-year conventional mortgage rate back then was 3.083%.

Flash forward two years later, to March 2023, and a new home buyer in the U.S. would pay a median price of $449,800 for a new home according to initial estimates. And the interest rate on their 30-year conventional mortgage would be about 6.544%. How different would the monthly mortgage payment be for someone buying the median new home sold in March 2023 compared to what someone would have paid for the median new home sold two years earlier?

There's a little more to it than that, because we also need to take things like property taxes and homeowners insurance into account. We would also need to factor in how big the median down payment for a home is these days, and if that's less than 20% of the sale price of the new home, how much private mortgage insurance would add to its monthly payment.

So we did all that and created the following chart to show how different the monthly payment is for a median new home sold in March 2023 is from that for the median new home sold back in March 2021.

How U.S. Home Price Inflation and Interest Rate Hikes Have Affected the Monthly Payment of Median New Home Buyers, March 2021 - March 2023

Overall, we find that between the increase in the median price of new homes sold in the U.S. and interest rate hikes, the monthly payment for the buyers of median new homes has increased by $1,313, rising 66.5% from $1,974 in March 2021 to $3,287 in March 2023.

Of that monthly increase, $334 is because of the inflation of new home sale prices, which is how much higher a basic mortgage payment would be if interest rates had not also risen. Of course, a higher home value would also boost the amount of property taxes owed by $69 per month and the amount of homeowners insurance by $26 per month.

That doesn't include the stand-alone increase in the size of a down payment, which for 2022's median of 13% of the sale price of a home, would have risen by $11,276, increasing from $46,748 to $58,474.

Because the median down payment for a home in 2022 was 13%, the cost of private mortgage insurance would also be tacked onto the monthly payment. While that can range anywhere from 0.19% and 1.86% of the balance owed on a mortgage, we set it at 1.0% for our brand new homeowner to put it in the middle of that range.

Briefly going back to property taxes, the estimates we used in our calculations is based on the median statewide property tax rate of 0.92%, which just happens to be the rate that applies in the state of Georgia. We did not factor in any county, municipal, or local property taxes.

The remaining $817 of the monthly payment increase is entirely due to the rise of average mortgage interest rates between March 2021 and March 2023. With the 30-year mortgage rate more than doubling during this period, this factor represents the biggest contributor to the increase in the monthly cost of owning a new home. It's all the more remarkable because nearly all of the increase in mortgage rates took place after December 2021.

Finally, we were inspired to create this waterfall chart by u/CheeryOaf's original version at r/dataisbeautiful. It's a neat way to capture how the various components of the monthly cost of homeownership have changed.

Image credit: Photo by Tierra Mallorca on Unsplash.

Upward Momentum for U.S. New Home Market Cap Continues in March 2023

New Home Under Construction - Source: WikiMedia Commons - https://commons.wikimedia.org/wiki/File:Home_under_construction.JPG

As expected, the market capitalization of new homes sold in the U.S. continued rising in March 2023. Increases in the number of new homes sold and their sale prices are responsible for the development, building on the momentum from February 2023's first increase of the nation's new home market cap after 11 months of steep decline.

That decline coincides with the Federal Reserve's series of rate hikes that began in March 2022 when the Fed finally responded to inflationary pressures that began building a year earlier. The rate hikes have contributed to pushing up mortgage rates, which peaked around 7.0% in November 2022 and have come down since. A 30-year conventional fixed rate mortgage reached an average post-peak low of 6.3% in February, before bouncing up to an average of 6.5% during March 2023.

While mortgage rates averaged slightly higher in March, it wasn't enough to overcome the positive momentum for new home sales, as Reuters reports "the worst of the housing market rout is likely over". But they note there's a cloud to go with that silver lining - more on that later....

Here is the latest update to our chart tracking the trends for the market cap of new homes, which illustrates how U.S. new home builders and this sector of the U.S. economy are faring:

Trailing Twelve Month Average New Home Sales Market Capitalization in the United States, January 1976 - March 2023

The chart shows the time-shifted rolling twelve month average of the U.S. new home market capitalization for March 2023 is $26.95 billion. This figure is an initial estimate, which will be subject to revision during each of the next three months.

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

Sales of new homes rose:

Trailing Twelve Month Average of the Annualized Number of New Homes Sold in the U.S., January 1976 - March 2023

New home prices increased:

Trailing Twelve Month Average of the Mean Sale Price of New Homes Sold in the U.S., January 1976 - March 2023

As we mentioned, there is a cloud in the silver lining for U.S. new home builders. Reuters finds the potential for gloom after pointing to the glittery lining:

Home builder sentiment continues to creep up, though it is still depressed. Single-family housing starts have risen for two consecutive months in March and permits for future construction increased to a five-month high.

Still, challenges remain. Banks have tightened lending standards, which could make it harder for homebuilders to access funding for new projects and for prospective home buyers to secure loans to purchase houses.

The median new house price in March was $449,800, a 3.2% rise from a year ago. There were 432,000 new homes on the market at the end of last month, down from 434,000 in February. At March's sales pace it would take 7.6 months to clear the supply of houses on the market, down from 8.4 months in February.

The question for new home builders continues to be whether the positive momentum can overcome the negative conditions that are developing in the U.S. economy. Now that we're past the first quarter of 2023 and soon reaching what's expected to be the end of the Fed's series of rate hikes, the answer to that question will hinge on other developing economic factors.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 25 April 2023. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 25 April 2023. 

Image credit: WikiMedia Commons: Home Under Construction. Creative Commons Attribution-Share Alike 3.0 Unported License.

Affordability of New Homes Dips in February 2023

The relative affordability of the typical new home sold in the U.S. dipped slightly in February 2023.

Coming out of January 2023's improvement, we had anticipated lower mortgage rates recorded in February 2023 would lead to a lower median new home's mortgage payment. Instead, those lower mortgage rates were not able to offset a month-over-month increase in the median sale price of new homes. The median new home sold in the U.S. became slightly less affordable as a result.

That outcome is shown in the following chart, which tracks the mortgage payment for the median new home sold in the U.S. as a percentage of median household income. The chart shows that after dipping to a revised 39.3% in January 2023, the mortgage payment for a median new home sold in February consumed an initial estimate of 40.1% of median household income.

Mortgage Payment for a Median New Home as a Percentage of Median Household Income, January 2000 - February 2023

Overall, the share of a median household's income that would be consumed by the mortgage payment for a new home continues to exceeds the levels recorded during the height of the early 2000s' housing bubble. That is to say new homes have never been less affordable for the typical American household than the period from mid-2022 to the present.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 23 March 2023. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 23 March 2023. 

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 5 March 2023. Note: Starting from December 2022, the estimated monthly mortgage rate is taken as the average of weekly 30-year conventional mortgage rates recorded during the month.

Image credit: Photo by Tierra Mallorca on Unsplash.