Despite recent optimism surrounding the resurgence in New Home Sales, a deeper dive by American Real Estate Analyst Nick Gerli reveals a perplexing contradiction at the heart of the housing market. Over the past year, new home sales figures have sprung back to life, a development many have found astonishing. Yet, on closer inspection, a starkly contrasting reality emerges: Buyer Traffic at home builder sites has plummeted to its lowest level in decades.
Nick Gerli’s probe into this puzzling scenario unveils a multifaceted narrative. He hypothesized that one possible explanation could be builders selling homes in bulk, at slashed prices, to real estate investors. This isn’t a baseless speculation; whispers of such transactions have been circulating among market insiders. However, this theory hits a snag when considering the broader picture. The activity of real estate investors has significantly dwindled, with a sharp 45% decline in home purchases compared to the preceding year.
On the flip side, Gerli notes an aggressive pricing strategy adopted by builders, aimed at boosting sales. The Median Sale Price of New Homes has seen a near-16% cut from its peak. This drastic reduction might be enticing enough to convert the scant number of visitors into buyers. Yet, the veneer of affordability cracks with the surge in mortgage rates, almost touching the 8% mark, effectively nullifying the financial relief the price cut aimed to provide. Despite this, builders like DR Horton are trying to sweeten the deal by offering enticing mortgage rate buydowns, advertising rates as low as 5.5%.
The real concern, as voiced by Gerli, is the sustainability of this seemingly artificial market buoyancy. The National Association of Home Builders (NAHB) presents a grim picture, with Buyer Traffic figures suggesting that builder sales are “running on fumes.” The last time buyer traffic dwindled to such dismal lows was during significant market downturns: the Lockdown, the 2008 Crash, and the late 80s Housing Downturn.
The Builder Buyer Traffic data doesn’t stand alone in this ominous prediction. It aligns with the discouraging statistics on mortgage purchase applications and existing home sales. Mortgage applications for buying homes have tanked by 50% from their pandemic peak, resting at a chilling low last seen in 1994. This, Gerli points out, serves as a real-time indicator of how aggregate home sales may fare in the coming months.
Gerli’s scepticism about builders continuing to “pull a rabbit out of their hat” in this unfavourable environment resonates with the underlying data. Despite the builders’ valiant attempts at beating the odds through bulk sales, generous price cuts, and mortgage rate buydowns, the fundamental indicators seem to lean towards a less than rosy outlook for the housing market.
The pressing question remains: How long can builders keep defying the sombre reality that the data points towards? Only time will tell if the current uptick in home sales figures is a mere flash in the pan or a sustainable trend. In the meantime, the housing market continues to be a theatre of unpredictable scenarios, with every act revealing a new twist in the tale.
