INVESTMENT

Why did Home Sales lose the mark in May?


The average selling price of homes continues to set new records every month – and both potential buyers and homebuilders are feeling the effects. Add to that a mix of high material costs and ongoing construction labor shortages over a decade, and there are good reasons to expect your home sales pace to slow despite friendly mortgage rates.

And slow them down – faster than the forecasters expected. The new May numbers for both existing home sales and new home sales show that both print economists have missed the mark they predicted.

What’s going on with existing home sales?

Current home sales fell 0.9% between April and May to 5.8 million units at an adjusted annualized rate. (This data includes condos and co-ops in addition to single-family homes.) It slows down unit sales in the fourth month of May. Year-on-year growth was 44.6%, but that is unclear as activities shut down completely in the summer of 2020.

Three of the four regions identified by the National Association of Realtors have seen monthly declines. Only the Midwest region has a small profit track. Not coincidentally, the Midwest has the lowest average selling price in the country – মে 268,000 in May.

Existing home supply is low in low-end price range. But, unfortunately, there is also the highest demand. We have a good idea why: more work from home and increased interest in rural areas. Also, Zillow data shows that the average home-swapper has moved to a zip code whose home costs $ 27,000 less and is 33 square feet larger than their previous area.

The supply of existing homes for sale is the highest in the 750,000 to $ 1 million category; Year-on-year unit sales growth in that group was a staggering 178% in May. More broadly, intermediate existing homes sold for just 350 350,000 in May, up 23.6% year-over-year.

Both of these, ahem, are the highest readings so far.


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Sales of new homes fell in May – plus, April revision

New home sales analysts expect more than 100,000 units to be lost, which is in contrast to the agreed estimate of ,, 000,000 at season-adjusted annual rates of 9,000 per season.

I speak for all Icon men when I say it’s a big miss.

The southern region had the biggest pull of results with a 14.5% decline per month.

The number of new home sales reported before April was down about 6% from the initial print of 863,000 units. Overall monthly home supply increased slightly to 5.1 months in May, but still remains lower than by 2020.

The April revision is a neon sign that indicates how daisy the path between the signed contract and the finished home is. Rising material costs dramatically affect things on the ground. Keep in mind that about 80% of new homes are sold before construction is complete. Only now, those new constructions are being delayed or completely shut down when the construction industry is involved in supply chain problems, product shortages, skyrocketing costs – and consequently margin pressures.

Buyers and investors desperately need new supplies

The only thing that will bring the housing markets back into balance and reign at the average selling price is more supply. NAR estimates that millions of new homes are needed to meet current demand, which brings us right in front of the walls, as the current pace of new home starts is running at less than 1.6 million units a year.

Of course, homebuilders would love to meet the intense demand – but then we rush to the other wall. The prices of commodities for wood, copper, cement, and even labor are rising erratically. Bloomberg’s Commodity Spot Index rose more than 50% last year. Recent estimates show that rising commodity costs alone add more than ,000 36,000 to the value of a new home in 2021.

Low interest rates are great, but the power struggle is still losing in the front lines for everyone but all the cash buyers… who are increasingly a corporation, institutional fund or foreign entity. Personal incomes may rise as the economy emerges from an epidemic-induced recession, but they are not keeping pace with home prices. And affordability math needs to take hold where the mortgage rate is – the result of increasingly low probability is that inflation is at its highest level in decades.


How to be v5

Understanding the edges of the spectrum

It is important that we talk about how many economic, savings and cost variables are at the end of their spectrum and move forward with what this means about the health of the housing market.

We have got a front row seat in a domestic economy that is growing faster than it has in 25 years. GDP grew 6.4% in the first quarter of 2021 and is forecast to be more than 10% in Q2. Yes, the comparisons are still friendly to the epidemic-infected 2020 numbers. Yet, after metric tons of direct stimulus, tolerance, and market stability by the Fed, it is fair to say that we are all firing on cylinders. Even the labor market has been at its best for more than a year.

Meanwhile, the national savings rate is the highest in more than 50 years. So on the margins, potential domestic workers are on the best relative basis over a longer period of time than their generation.

Fred 11

Mortgage rates are also at multi-decade lows, thanks to the Fed trying its best to force them there. They are still buying 40 40 billion a month in mortgage-backed securities.

So we have a number of key variables that affect the ability and aspiration of a home in the region of the second quality deviation, which means they are at the proverbial end of their spectrum. So what does this mean going forward? Well, the math geeks will say – and sadly, I can speak for them too – perhaps these variables will return to the historical rules in the months ahead, as opposed to the continued pressure on the outer edge.

Going back to the rules means less near-term affordability. The supply part of the equation, two to three years behind the market to bring what it wants.

For my money, I recommend looking at regional and national average rents over the next six months. Given the declining capacity for a larger and larger base of people, how will rents respond? Can rents match and climb inflation? This will be the key to understanding how multiple property owners can manage their cash flow and evaluate the profitability of their enterprise.

Nationally rents rose about 2.3%, a strong figure that puts the 12-month growth at 5.4%. A good start – but in 2021, spending and inflation will have to hold on to monthly gains.



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