The U.S. housing market is currently experiencing a significant shift, marked by a record decline in new home prices. Recent data reveals that the median price of new single-family homes plummeted by 17.6% over the past year to $409,300, the lowest since August 2021. This decline represents the steepest annual drop in new home prices since records began in 1964.
In October, sales of new houses fell to 51,000 units, though this was a 19% increase from the previous year when the market was notably sluggish. Despite this, the sales levels were still 7% lower than in October 2019. The inventory of new houses available for sale has risen to 449,000, translating into an 8.8 months supply at the current rate of sales. This excess inventory is motivating builders to offer incentives to stimulate sales.
The decline in new home prices is more significant than the drop in existing home prices, which fell 6% from their peak in June 2022. Comparatively, the national median price for existing homes is now $396,100, closely aligning with new home prices, an unusual occurrence.
Homebuilders are adapting to these market conditions by increasing incentives, reducing home sizes, and de-amenitizing to maintain affordability. D.R. Horton, a major homebuilder, has been particularly active in implementing such strategies, recognizing the continued demand from first-time homebuyers despite the rising interest rates.
However, the situation is not entirely bleak. The recent retreat of mortgage rates from their two-decade highs to levels last seen in late September might pave the way for a rebound in sales. This adjustment in mortgage rates aligns with a decline in sales reported by the Commerce Department, which was in line with a deterioration in homebuilder sentiment as the rate on the popular 30-year fixed mortgage approached 8%.
Economists have advised caution in interpreting these price drops, noting that other measures like the Federal Housing Finance Agency’s house price index show strong price growth. The mix of sales, particularly in the $150,000 to $499,999 price range, accounted for a large share of the transactions last month. This mix shift can impact the median sale price figures, making it a less reliable gauge of house price trends.
The U.S. housing market is currently navigating through a complex phase, marked by significant price adjustments and changing consumer dynamics. While the drop in new home prices is notable, it is essential to consider the broader context of the market, including interest rates, inventory levels, and the mix of sales, to fully understand the evolving landscape of the U.S. housing market.
