Category Archives: real estate

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.

U.S. New Home Market Continues Shrinking

The U.S. new home market continued shrinking in December 2021. Political Calculations' initial estimate of the overall market capitalizaton of the U.S. new home market for December 2021 is $26.14 billion. That figure is 13.2% below the December 2020 peak of $30.12 billion.

Trailing Twelve Month Average New Home Sales Market Capitalizaton in the United States, January 1976 - December 2021

For December 2021, there were two notable developments. First, the number of new home sales rose slightly from the previous month, breaking what had been a steady decline. Second, the average sale price of the new homes sold declined, confirming the reversal of what had been a rising trend in recent months.

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 saw a slight increase:

Trailing Twelve Month Average of the Annualized Number of New Homes Sold in the U.S., January 1976 - December 2021

New home sale prices fell significantly:

Trailing Twelve Month Average of the Mean Sale Price of New Homes Sold in the U.S., January 1976 - December 2021

In December 2021, the effect of falling average sale prices outweighed the slight increase in number of sales. Consequently, the market cap for the U.S. new home market continued its now year-long decline.

Affordability of New Homes Continues Decline

New homes continued to become less affordable for the typical American household according to the latest data published by the U.S. Census Bureau.

Data released just before the Christmas holiday for November 2021 confirms that trend, in which the raw measure of relative affordability for a new home reached a new all-time low. The following chart shows how low with annual data from 1967 through 2020 and with monthly data from December 2000 through November 2021:

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

A different measure of relative affordability that takes mortgage rates into account also points to new homes becoming more expensive. The next chart shows the mortgage payment of a median new home sold as a percentage of median household income from January 2000 through November 2021:

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

The cost of a mortgage payment for a median new home has risen from a pandemic recession low of 24.5% of median household income in April 2020 to 29.4% in November 2021. That's despite U.S. mortgage rates being held at near all-time lows during this period.

So not only is the U.S. new home market shrinking, rising prices for new homes mean housing is becoming less affordable for the typical American household. Isn't that the exact recipe for stagflation?

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 23 December 2021. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 23 December 2021. 

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 23 December 2021.