Housing bubble prepares to burst: Inventory of unsold new homes climbs to highest since 2008, with 9 months supply, sales crash to prices below $400,000
Homebuilder stocks are slumping amid the worst construction cost inflation, shortages and soaring mortgage rates that are driving buyers away from the market.
By Wolf Richter for WOLF STREET.
Sales of new single-family homes in April fell 16.6% from March and 26.9% from a year ago, to a seasonally adjusted annual rate of 591,000 homes, the lowest since the lockdown. April 2020, according to the Census Bureau today. New home sales are recorded when contracts are signed, not when deals are closed, and can serve as an early indicator of the overall housing market.
By region, sales deepest in the South:
- South: -19.8% for the month, -36.6% year-on-year.
- Midwest: -15.1% for the month, -25.5% year over year
- West: -13.8% for the month, -12.4% YoY.
- North East: -5.9% for the month, +17.1% YoY
Unsold new home inventories have soared in a historic month-to-month jump of 34,000 homes, and 127,000 homes from April last year, to 444,000 unsold homes, seasonally adjusted, the highest since May 2008.
The month-over-month jump and the year-over-year jump were the biggest jumps ever, both in the number of unsold homes and in percentages.
By region, unsold inventory spiked the most in the south and dipped in the northeast. Percentage increase year over year:
- South: +53%
- Midwest: +39%
- West: +8.4%
- North-East: -4%
The supply of unsold new homes has increased in a historic month-to-month jump from an already high 6.9 month supply in March to a staggering 9.0 month supply in April, having nearly doubled from a year ago a year :
The fund fell below $400,000. At the high end, things weren’t so bad: sales were flat year-over-year in the $400,000-$750,000 range, though they dipped month-to-month. the other. But you can’t sustain a housing market by simply selling to the rich.
In the price categories below $400,000, the bottom fell. Year-over-year decline in sales:
- $300k to $400k: -42%
- $200k to $300k: -71%
- $200: death.
Collapse in sales below $400,000 has shifted the mix, distorting the median price.
The median price is the price in the middle. My favorite example: To get the median price in a market where 9 houses have sold, you list them by price from highest to lowest, and the price of the fifth house from the top or the fifth from the bottom (same house) is the price in the middle, which forms the median price.
Now imagine, two buyers who would have bought the two cheapest houses can’t afford to buy them, and the sales don’t happen. But the remaining seven houses are selling. The middle is now the fourth house down, or the fourth house up. This change in mix skews the median price measure simply by the way the median price is determined, although house prices have not changed:
And this mix change is what happened in reality too. The mix changed drastically, with the bottom falling below $400,000 in sales, but sales above $400,000 were able to hang on. And that change in mix pushed the median price up to a new all-time high of $450,600, up 19.6% from a year ago:
Homebuyers battle soaring mortgage rates making high house prices all the more difficult to manage. And with every increase in mortgage rates, and every increase in home prices, entire layers of potential buyers abandon the market, and sales volume plummets:
Homebuilders are grappling with the worst inflation on record in construction costsamid shortages of materials, supplies and labor that are tangling construction projects, causing huge delays and cost overruns, stalling deliveries of completed homes and causing immense frustration all around.
Construction costs for single-family homes – excluding the cost of land and other non-construction costs – rose 18.2% year over year, the worst spike ever in the data dating back to 1964, and the fifth straight month with year-over-year spikes of more than 17%, according to separate Census Bureau data today. April was the 12th month in a row with double-digit cost spikes – which partly explains why the floor falls in homes below $400,000:
Homebuilder stocks have been crushed for months, and passed out again today upon hearing the news. This list and chart of major homebuilders shows the percentage declines since early afternoon today (data via Y-Charts):
- R. Horton: -39.6%
- Lennar: -38.5%
- Pulte Group: -29.0%
- Taylor Morrison: -25.5%
- Merit: -37.2%
- NVR: -31.2
- Home KB: -30.6%
- Century: -39.5%
- LGI houses: -43.1%
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