With new home sales dropping their lowest pandemic levels, the US housing boom is likely over. Sales of brand new homes dropped to their lowest levels in June since April last year.
Housing Boom Cooling Off
According to data released by the US Census Bureau, June home sales dropped to their lowest levels since the start of the pandemic last year. For June 2021, the total amounted to an annualized rate of 676,000.
This is 6.6% below May’s rate of 724,000 and 19.4% lower than below June 2020’s level of 839,000. In contrast, analysts expected home sales to increase by 3.4% for the month. Instead, the numbers dipped to negative territory.
The housing boom is now showing signs of cooling down after more than a year of anxious buying, low supply versus high demand, and ballooning prices.
As a result, many newly built homes became out of reach for buyers who remain on the lookout for a house. In fact, the median home price for June 2021 rose 6% compared to June last year. While it remains a large gain, it remains a pittance compared to 15-20% gains made in previous months.
Home Buying Relegated To The Higher End of The Market
Meanwhile, the remnants of the home-buying spree are concentrated in the higher spectrum of the market, However, builders cannot capitalize on demand as construction costs continue to shoot upward.
Items such as softwood lumber spiked up 300%. While prices dropped earlier last month, softwood remains pretty expensive at 75% higher compared to last year’s prices. Other lumber products are also starting to lower their prices. However, they remain significantly higher compared to pre-pandemic rates.
Peter Boockvar, chief investment officer at the Bleakley Advisory Group, said there are many shortages affecting supply. “We also know there are shortages of appliances, labor, and affordable lots. The moderation in home sales is likely a combination of sticker shock and the slowdown in the ability of builders to finish homes because of a variety of delays,” he said.
Supplies Are Increasing
The list of new homes for sale increased in the last two months. From a 5.5-month available supply last May, inventory now stands at 6.3 months in June. In contrast, there was only 3.5 months supply available during the Fall season of 2020. Now, the number of homes for sale that has yet to start construction hit an all-time high.
“Annual comparisons will get even more difficult in coming months, as it was this time last year that the market began to surge and reach highs not seen since before the Great Recession,” said Matthew Speakman, a Zillow economist.
Higher Mortgage Rates
June buyers this year also faced higher mortgage rates. Last month, rates went up a quarter of a percentage point. While that seems like a negligible increase, remember that home prices are also getting more expensive.
Higher prices mean less financial room to absorb higher mortgage rates. Among the home units, Single-family housing starts continue to gain, albeit slowly and not on the lowest end of the market. Permits, an indicator of future construction, are not as robust as the market needs right now.
As a result, the previously strong buyers’ market is now getting squeezed by affordability and supply. This led to a lower appetite for home buying these past two months. Builder analyst Ivy Zelman wrote as much in a note last month. “We are shifting our tone on the housing market based on our analysis of proprietary data showing early signs of a cool down,” Zelman added to his note.
Watch the Rate Update with Dan Frio talking about the Mortgage rate update and the housing market:
Do you agree that the US housing boom is now over? Have you bought or sold a house during the pandemic?
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