Housing supply continues around historic lows, particularly at the entry level, supporting demand and maintaining rising housing prices.
Nonetheless, new single-family houses have come to the rescue (at least to some extent), tempting eager buyers upset by the low resale inventory. Furthermore, the price difference between the median existing-home sales price and the new house sales price has narrowed significantly in recent months, which is another incentive tempting home buyers.
Existing homes
There was some good news for resale inventory, most likely due to home buyers exiting the market or turning to new construction.
For months, existing inventory has been stuck at record lows. Following a flat June, unsold existing house inventory climbed by 3.7% between June and July. However, at the current sales rate, this only raises existing inventories from a meager 3.1-month supply to a 3.3-month supply. A balanced housing market, according to many analysts, contains four to six months of inventory.
Meanwhile, the seasonally adjusted estimate of new dwellings for sale at the current sales rate was 437,000 at the end of July, reflecting 7.3 months of supply at the current sales rate, down from 10.9 months of supply a year earlier.
Despite mortgage rates remaining at 6.75% in July, new home sales increased 4.4% to a seasonally adjusted annual pace of 714,000 from 684,000 in June.
According to the Mortgage Bankers Association, the 35.5% year-over-year increase in new home purchase mortgage applications in July revealed that new homes are having their moment.
FHA-insured loans are becoming a larger portion of new home purchase applications. According to a National Association of Homebuilders (NAHB) survey, the share of new house sales backed by FHA loans increased from 12.1% to 14% in the second quarter of this year. Because of the lower credit score and down payment requirements, FHA loans are popular with low- to moderate-income borrowers and first-time home buyers.
The typical sales price for a new home in October 2022 was $496,800, while the median sales price for an existing home was $378,800—a difference of $118,000. The difference is now only $30,000.
The median new house sales price in the United States, which fell to a 2023 low of $417,200 in April, has since risen due to continued demand. According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD), the median sales price for a new home increased to $436,700 in July.
Year over year, new home sales are up 31.5%, even as existing-home sales continue to fall.
Forecasted Housing Starts in 2023
There were conflicting signs in the construction business, implying some builder trepidation in the face of rising mortgage rates and other industry issues.
Following a drop in June, single-family construction starts increased by 6.7%. According to the Census Bureau and HUD, building permit applications increased 0.6% from the previous month.
Simultaneously, after seven months of growth, builder confidence plummeted.
The most recent NAHB/Wells Fargo Housing Market Index (HMI) that gauges builder sentiment fell from 56 to 50. A number of 50 or above indicates that more builders anticipate favorable conditions for new building.
With mortgage rates on the rise again, builders resumed to giving incentives as a dangling carrot for home buyers in August, with 25% of builders offering sales discounts, up from 22% in July. More builders also gave incentives to boost sales, which increased by 3% between July and August.
In other words, the average first-time home buyer does not earn enough to qualify for a mortgage.
Are Home Prices Starting to Fall?
Despite signs that home prices are beginning to fall in some areas, the housing affordability crisis is likely to persist due to a limited housing supply, persistently high mortgage rates, and sales prices that are approaching the record-high median existing-home sales price of $413,800 in June 2022.
According to NAR, the median existing-home sales price fell from $410,200 to $406,700 between June and July, but gained 1.9% year on year.
According to a Redfin analysis, first-time home buyers will need to earn approximately $64,500 per year, which is 13% higher than a year ago. In June, the average price of a starter house reached an all-time high of $243,000 for the first time.
According to the Realtor.com and NAR Home Affordability & Supply Report, those earning $75,000 per year may afford a $256,000 home, yet homes at this price or less accounted for only 23% of existing home listings in April.
