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How Much Longer Can The Record New Home Sales-To-Price Divergence Continue
Moments ago the US Census Bureau reported the latest, July, new residential sales data, which at 507K, was a modest miss to expectations of 501K, if a substantial 5.4% rebound to June's 481K, which was to be expected: June was the lowest print since November 2014. The rebound was nearly across the board, with the only region posting a decline in July was Midwest where a 6.9% drop in new home sales was recorded: every other region saw gains, with the Northeast highest by far with a 23.1% sequential jump.
And while the July print was ok, in the context of the long-term chart we can see just how weak the housing recovery continues to be during the post-crisis cycle.
But the biggest surprise is not in the volumes of new homes sold, but the ongoing gaping divergence between volumes and prices. As we have shown previously, this record spread will have to close one way or another, and with the median new home sales price of $285,900 or virtually unchanged from a year ago, it would appear that new home buyers are finally starting to rebel against prices whose rise has far surpassed the increase in actual sales.
How much longer can this record divergence persist, even if as the chart above shows, it is slowly starting to converge.
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Seasonally adjust this!
https://www.census.gov/construction/nrs/pdf/newressales.pdf
Not seasonlly adjusted sales down m/o/m, median price up.
Houston, We've Got a Problem
Wow, This IS a shocker. If prices don't rise, people keep buying.
I hesitate to classify BlackRock as "people".
All of the Fed cheap money has pumped up the market into a new distopic reality. Wait until it all drains out!
And this is why mortgage apps are down. Not everyone is retarded. You don't get a mortgage when you know prices are about to collapse.
I'm certainly not; and it ain't for lack of 20% down or a desire to keep renting in this environment.
I'll gladly take that 6% loan (and write-off), if I only need to borrow 60% of today's principal.
Do it, Janet! DOOO IT!
as you all read the above tyler post, how do we know any of the reported data is close to correct?
Whats the median or average price? Whats the consequence of nicer homes in better locations being sold?
a better way to report would be by reporting price per square foot, but even then that only accounts for size, not quality or location. price per sq foot would be valuable in a planned development.
I think we've built all the new homes we're ever going to need. Just enough of them now to meet replacement need.
Demographics.
Indeed.
You will be adding a few million Mexibeans a year depending upon the next presidential, where do you plan on putting them?
Trailers. You don't think they'll end up in 500K to 1 mil boomer housing, do you?
It may be a civil right, no docs, no down mortgages. Its happened before.
... and now there is legislation to accelerate this: http://www.zerohedge.com/news/2015-06-11/here-comes-affirmatively-furthe...
5-6 families per, why not?
It will last as long as big banks and hedge funds can get free money to buy and rent houses.
Inflation, what's that?
There is no real reason why new home cost need to go down. One can even make the argument that with less scale in production, marginal labor participants dismissed, marginal suppliers of lumber and other supplies liquidated etc that you could actually see an increase in cost per unit
And let's not forget that the most active buyers are those with higher incomes.
Except... most major commodities are down from the China slowdown. So the only way it now costs more to build a house in the U.S. must come from labor costs... which seems to mean that Obamacare is levitating new home prices. Tada!
Right....we'll deflate our way to the moon!
Answer: how much more can we borrow?
Food for thought:
I live near a rail line, and, since Sunday, the volume of trains on this particular route has roughly tripled, especially last night, when the traffic was virtually non-stop.
This is a major commercial route through upstate NY, connecting the Great Lakes with NYC.
Something's a'comin' or, a'goin'. Most likely going to be a shitstorm.
Wha? Get out there and take a look and report back!
This is the kind of important shit we come here for...
Just some military equipment going home after Jade Helm.
So what's going by?
Tanks on rail cars? new cars?
sometimes the codes on the side can tell you
Was watching a flipping show and saw a 2100 sf house in LA/Hollywood with an asking price of 15 million. Had to laugh beautiful home, wonderful view but $7100 a sf.
Good luck with getting that but then again if you have a billion dollars, 15 million is chump change.
I wonder if this can be explained by fewer and fewer people having the time, inclination, or know-how to buy a fixer-upper (e.g. existing home).
It sure would be nice for that Green Line to come down toward that $80,000 mark with the Red Line.
Existing home inventory is fairly low at about 2.8 million units. https://research.stlouisfed.org/fred2/series/HOSINVUSM495N
But then there's real estate "shadow inventory" at 7.1 million units ("Vacant Housing Units Held Off the Market"): https://research.stlouisfed.org/fred2/series/EOFFMARUSQ176N
If there are really 10 million houses hanging around, why would anyone pay $300,000 for a new one?
Another explanation: maybe it's just where the work is. Maybe you can get a cheap place (I'm sure you can; I've lived around Toledo), but you have to work remotely, be self-sufficient, or otherwise have a hard time finding income.
real estate is the only collateral remaining. Banks need it to sustain its current valuations-if that blows out, their derivatives blow out
municipal goevernments need vakluations to remian high-its the basis for their properrty tax revenue supporting the integrity of their bonds
back in '09 Fairfac Country, Virginia was literally talking about buying up unsold housing to keep prices from falling and blowing out their tax base
true, but they can't stop gravity. If no one buys the homes at these prices, they'll have to fall and their bonds along with them. I guess if BlackRock buys them all prices could stay up. Nice work if you can get it.
Let's not forget that the FED has purchased over $1.25 Trillion in MBS. These are mostly underwater and defaulted. In a real economy, a national / state / community bank would forclose and sell the distressed property at a large discount which would bring all home prices down. But the FED doesn't want this to happen because then they would have to mark to market the steaming pile of MBS they own.
That and ZIRP. A million USD mortgage with a 1% interest-only loan only runs $833 a month. Home prices can go to Infinity - And BEYOND!
It won't converge. The vast majority of new home starts were subdivisions in the exurbs anyway. I don't know why ZH keeps throwing this chart up here expecting home prices to decrease by 300 percent.
T-Rex
This is anecdotal but I live in upper NH in a resort area that is heavily frequented by folks from Mass and other New England areas. Lots of 2nd homes in the area. Most jobs are service jobs and the folks I know with money either make it somewhere else, are in the building trades or own hotels/rentals. This area was hardly touched in 08, although business did fall off in new construction for a while. Right now, we are seeing a rapid influx of new listings on the MLS, I suspect 2nd homes being sold in an attempt to shore up family finances. Tourist traffic is still strong and folks that rent to these guys or service tourists are still doing well. However, I can now see new construction falling off and what do builders do if they aren't building? Most are picking up rehabs and maintenance work but the inventory is building pretty fast and I think this time around we will finally see locals being severely impacted by the downturn. Right now, tourists are still flocking here because it's close and a relatively cheap vacation destination. However, when Mass and other states finally get a reality check and disposable incomes plummet, this place could easily turn into a ghost town, which would probably BK 90% of the working population in this area including most businesses.
Camden and Detroit needs new homes.
Just not in NJ or MI.
Housing prices are keeping pace with wages. About 10 percent higher than 2007. As the price of everything else rises, the ability to afford decreases. I do not see a contradiction.
Existing home sales through 2014 are higher than most of early nineties. June or july this year may be the peak month for this cycle. The nineties boom in new homes was fueled by the home-as-atm phenomenon; it's played out and the rules changed.
Neither the existing home sales or new sales capture how much renovation is going on. I suspect it's rather high.
https://alfred.stlouisfed.org/series?seid=EXHOSLUSA495S
https://research.stlouisfed.org/fred2/series/PRRESCON
So, why should the relationship hold in the first place, other than "because"? Generally, higher supply + constant demand = lower price. A plunge in housing starts, which should allow for working through excess inventory, should lead to firmer prices. So, shouldn't the most important relationship be price to total current supply? Most buyers are largely indifferent to new or existing home, as long as it has the features and price they want. In fact, I would say existing homes trade at a premium in my city, because people want to move in immediately.
This chart just doesn't make sense to me.
This is to be exected, and it may go on for a very long time.
Look at who the potential new home buyers are. Millenials are the group that should be fueling new entry-level, lower-cost home purchases. Look at their employment and income stats. They simply cannot afford to buy, so they rent or live with parents. That leaves the new home purchases to older, higher-income workers. The chart above is completely to be expected.
Until the economy gets fixed for the lower middle class this situation will continue or get worse.
Exactly. This chart is seriously skewed by all the older, "wealth effect" buyers. Millennials can't afford diddily.
New home sales: depends on demographics more than anything else. Price: the median house price has gone from ~135k to ~270k, or a 100% increase in 20 years, which annualized becomes... a shocking 3.5%. Gueass what? Compounding inflation from 1990to 2014 yields a 84% increase. Add something for industry specific inflation (didn't have data, but possibly it's higher than CPI due to an increase in the habitative standards..) and voilà, no surprise at all. ZH is always looking for alarming stuff where most often there is none... A website full of paranoids that only rarely get something right, don't trust Tyler Durden ;)
Understand completely...I am going back to trusting "mainstream" financial media...
Is that you Brian Wesbury?