Category Archives: real estate

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.

U.S. New Home Market Sees Positive Growth in January 2022

The U.S. new home market showed signs of a rebound in January 2022. The market capitalization for American homebuilders ticked up for the month over a potential bottom of 2021's downtrend in December. Political Calculations' initial estimate of the overall market capitalizaton of the U.S. new home market for January 2022 is $27.53 billion, an increase of 0.5% from December 2021's revised estimate of $27.38 billion.

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

The increase in the market cap for new homes was driven by two factors. First, the number of new home sales rose, continuing the increase in sales that began after November 2021. Second, the average sale price jumped higher, as 2021's rising trend for new home prices reasserted itself.

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 continued increasing:

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

New home prices resumed rising:

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

With both new home sales and prices rising in January 2022, the market cap for the U.S. new home market ticked upward, breaking its year-long downtrend and moving into positive growth. The question now becomes how long can that last with new homes becoming less affordable for the typical American household?

Affordability of New Homes in U.S. Resumes Decline in 2022

After breaking a long-running downtrend in December 2021, the question of whether that event marked a change in trend or was the result of noise in the data was raised. Housing data released by the U.S. Census Bureau last week points to noise as the answer to that question.

Combined with the latest median household income estimates, we find the raw affordability of the median new home sold in the U.S. reached an all-time low in January 2022. The following chart reveals that outcome:

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

Median household income only covered 17.8% of the median new home sale price in January 2022. This represents the lowest level on record for this measure of raw affordability.

Meanwhile, mortgage rates rose to 3.45%, their highest level since the March 2020 arrival of the coronavirus pandemic in the U.S. Thanks to that development, we find January 2022 saw the resumption of the rising trend for unaffordability established since the coronavirus recession bottomed in April 2020. The next chart confirms that result:

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

The average mortgage payment for a median new home sold in January 2022 would consume 30.6% of the income for the median American household. What's remarkable is that we're seeing that level with 30-year conventional mortgage rates still within 1% of their all-time low of 2.68% set back in December 2020. The last time we saw the identical level of affordability was in April 2019, when mortgage rates were at 4.14%.

Exit question: Between rising mortgage rates and rising home prices, which will have the bigger effect on new home affordability?

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 25 February 2022. 

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 25 February 2022.

Relative Affordability of U.S. New Homes Breaks Downtrend

December 2021 saw the relative affordability of new homes improve in the U.S., breaking an uninterrupted downtrend that began after April 2020 following the bottom of the coronavirus pandemic recession that month.

That improvement is mainly driven by a significant decline in the median sale price of new homes, which revised data indicates peaked at a record $421,500 in October 2021. Median new home prices then dipped to $416,100 in November 2021 before plunging 9.2% to $377,700 in December 2021 according to the Census Bureau's initial estimate.

The following chart shows how that unexpected drop in new home sale prices affects the trend for raw affordability, which indicates the portion of the median price of a new home would be covered by the annual income of the median American household.

Relative Affordability of New Home Prices | Annual: 1967-2020 | Monthly: December 2000 - December 2021

The impact of December 2021's apparent decline in median new home sale prices becomes more visible when we visualize a different measure of relative affordability that takes mortgage rates into account. The next chart features the mortgage payment for a median new home sold as a percentage of median household income in the period from January 2000 through December 2021, where December 2021's percentage shows the sudden improvement in realtive affordability:

Mortgage Payment for a Median New Home as a Percentage of Median Household Income, January 2000 - December 2021

If it holds, that's a rather remarkable reset. But that raises a question. How much of the sudden decline for December 2021's median new home sale prices is the result of noise from the Census Bureau's survey of new home sale prices?

References

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

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

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 1 February 2022.