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Builders Compete Against Resale Inventory Priced Significantly Below Their Asking Price

A report from the Wall Street Journal. “Americans purchased fewer new homes in May. Purchases of newly built single-family homes decreased 7.8% to a seasonally adjusted annual rate of 626,000 in May, the Commerce Department said Tuesday. It was the slowest pace of sales since December. The monthly decline was driven by an unusually large decrease in sales in the West.”

“Tuesday’s report showed the number of new homes for sale in May would last 6.4 months at the recent pace. That is up from 5.6 months a year earlier. The median sales price of a new home in May was $308,000, down from $316,700 a year earlier. But lower prices and more supply didn’t stoke better demand last month.”

From CNBC. “The decline in sales came even as home shoppers were watching mortgage rates fall. The average rate on the popular 30-year fixed mortgage started May at 4.29%, according to Mortgage News Daily, and then ended the month at 3.94%, a sizable savings on a monthly payment, especially given higher home prices.”

“‘The lower mortgage rates haven’t unleashed a new wave of demand,’ said Buck Horne, homebuilding analyst at Raymond James.”

“Horne pointed to rising competition from the increasing supply of existing homes for sale, especially in the markets where builders are most active. Supply of existing homes for sale is up a striking 85% in Las Vegas annually, 52% in Seattle and 21% in Dallas, according to Horne. Supply in Southern California is also up in double digits.”

“‘It’s harder for the builders to compete against resale inventory that is priced significantly below where their asking price is now,’ added Horne.”

“The median price of a newly built home sold in May was $308,000, down 2.7% annually. Builders are not necessarily lowering base prices, but they are offering more incentives; the drop in median price is likely due to a shift in the mix of homes selling. The share of homes sold in the $200,000 to $299,999 category increased in May. More buyers on the lower end would shift the median down.”

“The available supply of newly built homes also rose markedly in May to 6.4 months’ worth at the current sales pace. In contrast, the supply of existing homes for sale was at 4.3 months at the end of May.”

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This Post Has 47 Comments

  1. ‘Builders are not necessarily lowering base prices, but they are offering more incentives; the drop in median price is likely due to a shift in the mix’

    The mix! THE MIX!!

    I don’t really care if they mention it. But why only when prices are down?

  2. ‘The available supply of newly built homes also rose markedly in May to 6.4 months’ worth at the current sales pace. In contrast, the supply of existing homes for sale was at 4.3 months at the end of May’

    Quite the bump in one month. Isn’t 6 months the UHS line in the sand?

  3. ‘Supply of existing homes for sale is up a striking 85% in Las Vegas annually, 52% in Seattle and 21% in Dallas, according to Horne. Supply in Southern California is also up in double digits’

    I’ll mention it cuz the MSM won’t: where the fark are these thousands of shacks coming from, month after month for over a year now?

  5. If prices were identical to what they were in 2016, I’m sure sales would be better than they are now.

    A lot of demand was pulled forward into 2012-2018. Lower interests rate only calculate the cost to service the debt. Higher prices impact taxes, insurance, and other expenses.

    Prices are really high.

    1. Way too high. Regardless if I have a 1 or a 3 or a 6 percent interest rate, IMO, it’s all about the principle and not what rates I’m getting. Ol Diana from CNBC just can’t comprehend this idea. And approaching the halfway point of the year, I think June will have good numbers due to getting the kids into school, but July and beyond will be a continuous decline, in sales, prices, demand and interest rates.

      1. $750,000 @ 4.375% = $3,744.64 Monthly / 30 year$

        $750,000 @ 11.250% = $7,284.46 Monthly / 30 year$

        eye’s predict$ $helter.$hack $peculation$ will $hrivel like a summer raisin in Death Valley.

  7. The media and home buyers historically have been of touting the mindset of buying when interest rates are low to “lock in” a low rate, ignoring the obvious advantage of looking to buy when interest rates are high, to “lock in” a lower purchase price.

    You can always refinance later when rates decline. You can not “rebuy” later if prices go down.

    Of course real estate prices are affected as much by other factors than interest rates, but if that is the influence that is being considered, high rates may be a better time to buy.

    1. Yes, very true. I refinanced about a year and a half after I bought to save around three quarters of a percent over a thirty year loan. If AOC gets her way she can still inflate away about two thirds of my mortgage. Sometimes I wonder if you have so much corporate money buying homes because they know that the nuclear option is to inflate away debt. A truly massive tax on responsible people but such inside information would explain why they seem to have no qualms about buying rentals at the present inflated prices.

      1. “I refinanced about a year and a half after I bought to save around three quarters of a percent over a thirty year loan.”

        I bought a place in 1984 with a 13.94 % adjustable-rate mortgage, I never refinanced it. Did nothing but drop until I sold the place in 2005.

        30-Year Fixed-Rate Mortgages Since 1971
        http://www.freddiemac.com/pmms/pmms30.htm

      2. At lower interest rates, that three-quarters of a percent has a higher impact. At 4.25% to 3.5% that an 18% relative rate drop. Especially If you have good credit, it’s often easy to refi for close to nothing out of pocket. The reason is that the lower rate is still higher than what you could buy down the rate to by paying discount points / the underlying securities they are packaged into still find buyers.

        I did just that a couple months ago for 75 basis points off. There were some minor fixed costs I paid out of pocket – recoup/breakeven time? 2.3 months – so as a consumer, it’s a complete no-brainer. Just avoid the “temptation” to take any money out, and you’ve saved future cash outflow.

        I read a column a couple decades ago in the Dallas Morning News by Scott Burns that stuck with me on this. How if you lock in a historically low rate with a fixed loan, then if inflation is restated at any time and rates revert towards historical norms, you’ll be sitting pretty, and it can be an incentive to stay put. At that time though, especially in North Texas, they had not seen the inflation in the purchase prices that we’ve since watched as the global money poured into housing in search of yield.

        > A truly massive tax on responsible people

        I’m not 100% sure what you were saying – did you mean that inflating away debt will whack responsible people in the groin?

        1. did you mean that

          LOL. I have a $100 bill. This is money I saved from wages. It could be two weeks of groceries if I needed today. It could buy a meal, or a cup of coffee in 20 years, maybe. It all depends on how much borrowing you do between now and then, to bid up the price of things with money you haven’t earned yet.

          On the other hand, the Socialists will probably have made it illegal for me to even have a hundred dollar bill by then.

          1. gotcha.

            And that is a bigger fear in a Zero Interest Rate world – the “safe” ways that ordinary people have to save money and grow it are at high risk of falling behind the true inflation rate. And that’s the good part .. the bad is if the govt decides to deliberately inflate. Great for debtors, but at the expense of silly people who though they could save for the future.

          2. You shouldn’t blame the socialists, you should blame the US deficits being run. The greater the US debt gets, the higher chance it gets inflated away with monetary policy.

          3. the bad is if the govt decides to deliberately inflate

            I was concerned that might happen in the 1970s. We’ve come pretty far down that road since.

          4. the “safe” ways that ordinary people have to save money and grow it are at high risk of falling behind the true inflation rate.

            30yr treasuries @3% are doing just fine at the moment, thank you. If rates head lower, they’ll just gain in value and at some point the capital gain makes it not worthwhile to hold to maturity.

    2. ignoring the obvious advantage of looking to buy when interest rates are high, to “lock in” a lower purchase price

      As well as lower property taxes here in CA and lower realtor commissions.

  8. Powell is wrestling with whether to cut rates a Reuters report is stating. What the globalist Fed is really wrestling with is how does it help the global economy without helping Trump get reelected. Two globalist goals are in conflict. If Obama or W were in office the Fed would have cut interest rates at the last meeting.

    1. Powell is trying to jawbone up the dollar because gold’s jump to six-year highs has him spooked. Under no circumstances can the sheeple start getting the notion that it’s time to dump their debauched FedBux and seek shelter in precious metals.

  11. Residential Construction No Longer Driving GDP Growth in U.S. or Canada

    ‘U.S. national housing starts through May of this year, 2019, have averaged only 1.238 million units SAAR, a decline of -5.5% versus the first five months of 2018. To place this in a historical context, there has not been a decline in the annual level of U.S. housing starts since 2009.’

    ‘Sustained strength in new home construction is often a mainstay of GDP growth. When it is absent, nagging worries begin to surface about the economy’s ability to maintain good prospects.’

    ‘The Federal Reserve is aware of this dynamic and it’s undoubtedly one of the reasons the nation’s central bank has become more ‘dovish’ on interest rates.’

    https://canada.constructconnect.com/joc/news/economic/2019/06/residential-construction-no-longer-driving-gdp-growth-u-s-canada

    1. there has not been a decline in the annual level of U.S. housing starts since 2009

      Not a mention of the 50% drop in 2009. -5% is just a whiff of what probably is headed our way. All the stuff that goes into construction…Can China double down with another enormous credit expansion to save world GDP?

  12. Hey guys this here Ziller interactive price chart thingy is pretty interesting. You have to scroll down a little bit to get the graph: https://www.zillow.com/research/housing-market-cooling-may-2019-24552/

    If you select “ZHVI YoY” things start to get interesting. Then, if you look at specific cities it gets more interesting. Especially post-industrial ones like Pittsburgh, Philadelphia, Detroit, etc. Basically it looks like there was a huge (and I mean really huge) influx of money into into the lowest-end of these markets in 2016/2017 and this segment is now starting to tank. For example -4% in Pittsburgh and -1.7% in Baltimore.
    Where would the working poor come up with the income to pop prices 20% in a year? And why would they fall 5% with rising employment? Wouldn’t this be exactly the housing stock speculators would target?

    Of course cities like Seattle and San Jose, where the speculation was widespread among all tiers, are also tanking hard.

    In both cases the trend is hideous, just as bad as HB1.

    Keep the faith my brothers. You can do this!

    1. Basically it looks like there was a huge (and I mean really huge) influx of money into into the lowest-end of these markets in 2016/2017 and this segment is now starting to tank.

      I grew up outside of Detroit and keep tabs on the area and friends/family back there. The economic make up of the employed populations are VASTLY different between Detroit and Seattle/San Fran, and I noticed the crazy spiking of RE prices in smaller towns/outlying areas that weren’t booming starting about that time. Resales of 30 to 70 year old average homes. And the numbers didn’t make any sense – clearly external money was pouring in because the locals didn’t match what was going on.

      I assumed a mix of foreign money and giant companies like Blackstone and what was the one we linked to the other day? Those guys out to financialize every bit of the average person’s life they can.

      2. “Those guys out to financialize every bit of the average person’s life they can.”

        It’s becoming increasingly clear why history’s tyrants line-up the men with their palms-up or drive the intelligentsia into the countryside with a hoe. Crystal.

    1. With investors suddenly pouring funds into gold and Treasurys, it appears that a panic-driven flight-to-quality move is gaining strength.

      2. fastFT US Treasury bonds
        10-year Treasury yield drops back below 2%
        Pan Kwan Yuk in New York yesterday

        The 10-year Treasury yield fell back below the closely watched 2 per cent level on Tuesday, as investors await a speech from Federal Reserve chairman Jay Powell and concerns over rising tensions between the US and Iran boost demand for haven assets.

        Yield on the 10-year note was 3.1 basis points lower at 1.9884. It hit a 20-month low of 1.9719 per cent last Thursday.

        Yield on the two- and 30-year notes — at 1.7112 per cent and 2.5264 per cent respectively — also headed back to the multiyear lows touched last week. Yields fall when bond prices rise.

        Global bond yields have suffered a swift and dramatic fall in recent weeks as the US-China trade dispute and deepening pessimism about the outlook for the global economy, prompted investors to ramp up bets that the world’s most-watched central bank will have to step in and respond with aggressive interest rate cuts.

        New Zealand, Australia and India are among those that have cut rates this year while the US Federal Reserve and the European Central Bank have signalled their willingness to follow suit should weak growth and inflation persist. The Bank of Canada meanwhile kept interest rates on hold for a fifth straight time last month having raised them five times between July 2017 and October last year.
        …

  14. In 2012, the monthly median home payment was only $1,176, after adjusting for inflation, according to the report. But just six years later, it had jumped almost 51%, to $1,775 a month.

    “The fact that homeownership is rising despite all of the affordability challenges that buyers are facing reflects how important homeownership is to the American dream,” says Chief Economist Danielle Hale of realtor.com®.

    — I have no words.

  15. Ben Jones the recent Project Veritas expose is another reveal in the bias of Google, in this case with specific intent to affect the results of the 2020 U.S. election.

    Use DuckDuckGo or Bing for search instead of Google.

    1. Yeah, all that concern about “election meddling” went right out the window. A poster even attacked this blog on a previous comments, with the usual faux outrage. I pointed out somebody at google deleted all of my blogs in 2005. I guess they didn’t like anyone talking about their precious shacks.

      1. I think she was attacking me rather than the blog, though I think her real issue is with Les Deplorables more generally, especially the miscreants in here who fail to toe the progressive line or kow-tow to hysterical, irrational feminist lynch mobs.

    2. What happened is the last election showed all the parties and governments that weren’t already paying attention that it can be done, and they’re embarrassed they aren’t ‘with it’

      Expect it to be the new normal going forward and to trickle down to smaller elections.

    1. “The Trump Effect is under-cutting some of the primary drivers of Chinese demand for US property”

      God Bless President Trump for helping to keep foreigners from crowding out U.S. citizens from affordable access to our own housing market.

    2. The Financial Times
      The Big Read Global property
      Why China fell out of love with New York property
      After a crackdown on foreign deals by Beijing, Chinese investors have all but disappeared from the market
      Joshua Chaffin in New York and Don Weinland in Beijing June 24, 2019

      Wu Xiaohui was shopping in New York. For buildings. “He didn’t really care — he’d point out the window and say: that one!” recalls a real estate executive who met Mr Wu, then chairman of China’s Anbang Insurance. The acquisition strategy — to the extent there was one — appeared to be “the bigger, the better”, the executive recalled.

      Among the baubles Mr Wu snapped up was the fabled Waldorf-Astoria Hotel, the preferred Manhattan lodging of visiting kings, presidents and Frank Sinatra. Anbang paid $1.95bn for it in late 2014 — the biggest ever sum for a US hotel.

      These days Wu is in jail in China, sentenced to 18 years for fraud and embezzlement. Anbang, meanwhile, is under the control of the Chinese government and looking to unload US properties worth billions of dollars.
      …

  18. “‘It’s harder for the builders to compete against resale inventory that is priced significantly below where their asking price is now,’ added Horne.”

    True, but once all those spec houses and developments go under the bankruptcy auctioneer’s hammer, then the greedhead owners of the resale inventory are going to have to get serious about their sawin’ and slashin’ to compete with the flood of foreclosures. So you see, Horne, the universe has a way of setting things right, in its own due time.

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