Home Sales Are Ending The Year In A Major Slump

Sales of new homes were down nearly 36% over last year in November, as consumer confidence remains low and mortgage rates continue to rise.

According to Zonda, new home sales totaled 478,221 on a seasonally adjusted annualized rate in November, down 10.6% from the prior month and 35.9% lower than sales a year ago. On a non-seasonally adjusted basis, 34,741 homes were sold, 38.5% lower than last year and 27.5% below November 2019 levels. Meanwhile so-called “quick move-in inventory” — homes that can likely be occupied within 90 days — are rising. National QMI levels are up 173.5% over last year and 51.7% over pre-pandemic levels.

In addition, Zonda’s New Home Pending Sales Index (PSI), which combines both total sales volume with the average sales rate per month per community, clocked in at 104.0, a 38.1% year-over-year decline.

“There are a lot of reasons to fret about today’s housing market given the uncertainty and lack of buyer urgency,” said Ali Wolf, Zonda’s chief economist. “There are some shoppers, however, that are responding favorably to strategic price cuts, incentives, and most importantly, quality. Homes that are thoughtfully designed, well located, and priced right are still selling, bucking the broader market slowdown.”

Zonda also reported that nationally, new home prices increased year-over-year across entry-level, move-up, and high-end homes alike, rising to $339,273, $527,221, and $904,085, respectively. In addition, roughly 47% of homebuilders across the country reported lowering prices month-over-month in November. Many are also offering to-be-built incentives, with the average incentive coming in at $12,642, or 3.7% of the list price.

New home starts fell 16.4% year-over-year in November, according to the US Census Bureau. That’s a 0.5% slump over October numbers and suggests the ongoing supply-demand imbalance in the housing market will persist.

“Given existing headwinds including rising interest rates, a slowing economy and rising costs for many of the inputs to production, we would anticipate that the supply demand imbalance for housing will continue well into 2023 and beyond,” predicts Al Otero, Portfolio Manager at Armada ETF Advisors. “Renting continues to be the more affordable option to homeownership in many major regions of the country and we expect this trend to continue  as it is structural in nature with no easy fix for affordability.”

Existing-home sales fell for the tenth straight month in November to a seasonally adjusted annual rate of 4.09 million, down 7.7% from October figures and down 35.4% year-over-year, according to the National Association of Realtors. Meanwhile, the median existing-home sales price rose to $370,700, an increase of 3.5% year-over-year.

“In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the COVID-19 economic lockdowns in 2020,” said NAR Chief Economist Lawrence Yun. “The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows.”

As mortgage rates rise, more buyers appear to be moving to the sidelines, or at least pausing searches. Mortgage applications for new home purchases decreased 25.2% year-over-year in November, according to the Mortgage Bankers Association’s Builder Application Survey. Purchase applications did tick up slightly in November (an increase of 1% over October), perhaps in part in response to the 30-year fixed rate declining to 6.49% at the end of November after reaching 7.16% in mid-October.  However, both applications and sales remained over 20 percent below last year’s levels in November, according to the MBA, while the average loan size of new homes decreased from $400,616 in October to $392,465 last month.

The Mortgage Bankers Association’s Market Composite Index, which tracks of mortgage loan application volume, increased 0.9% on a seasonally adjusted basis for the week ending December 16 over the week prior, while on an unadjusted basis, it decreased 1% compared with the previous week. The Refinance Index increased 6% from the previous week and was 85% than the same week one year ago. The seasonally adjusted Purchase Index decreased 0.1 percent from one week earlier.

“The Federal Reserve raised its short-term rate target last week, but longer-term rates, including mortgage rates, declined for the week, with the 30-year conforming rate reaching 6.34 percent – its lowest level since September,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Refinance application volume increased slightly in response but was still about 85 percent below year-ago levels. This is a particularly slow time of year for homebuying, so it is not surprising that purchase applications did not move much in response to lower mortgage rates….The latest data on the housing market show that homebuilders are pulling back the pace of new construction in response to low levels of traffic, and we expect this weakness in demand will persist in 2023, as the U.S. is likely to enter a recession.”

Fratantoni did note that if mortgage rates continue push down as MBA predicts, more buyer will likely return to the market later in 2023.