New home prices vs. existing home prices: Why new home sales are stagnating as existing home sales decline

Price drops and mortgage-rate cuts, though costly for homebuilders, make new homes more attractive.

By Wolf Richter for Wolf Street.

The average price of new single-family homes sold in January increased from December, but was down 2.6% from a year earlier and 15.3% below the peak in October 2022 (blue line). According to today's data from the Census Bureau, the median price is back to $420,700, where it first stood in October 2021.

The three-month moving average, which smooths out some monthly fluctuations, was essentially unchanged from last month, and at $420,700, was 12.3% below its peak in December 2022 (red).

US new house sales 2024 02 26 price

But mortgage-rate buyouts and incentives do not add to the price decline., These are contract prices and do not include the large and sometimes unpredictable costs of mortgage-rate purchases, which homebuilders now use extensively to maintain their sales volume in this market where sales of existing homes Has fallen because prices are too high at these 7%. Plus mortgage rates.

Buying down a mortgage rate reduces monthly payments – and reduces home builders' profit margins – but does not reduce the contract price of the home.

The price drops also don't include other incentives that homebuilders offer to make deals, such as free upgrades.

These contract prices reflect the lower price points that homebuilders are now targeting with smaller homes and less expensive features.

Difference in price of new and used houses,

Homebuilders are now aggressively competing with homeowners, and the largest homebuilders have said so in their earnings calls. And price points between new and resale single-family homes have moved closer to each other. DR Horton, the largest homebuilder in the US, reports that with a purchase at mortgage rate, the monthly payment on a new home is less than the monthly payment on an equivalent resale home.

The difference in dollar terms. The national average price of new single-family homes has fallen faster and more than the national average price of existing single-family homes (via National Association of Realtors).

But there are some seasonal differences: The average price of existing homes has a distinct seasonal high in June and low in January, while prices of new homes have much less seasonality, but are very volatile from month to month. So we look at a 6-month moving average of new and used home prices, which removes some seasonal differences:

US new house sales 2024 02 26 price v resale 6mma

Difference in percentage terms. The average price of new homes (6-month moving average) is now only 7.1% higher than the average price of existing homes (6-month moving average).

Now add mortgage-rate buydowns into the mix – and it becomes clear how relatively unattractive resale homes have become at their current prices, given the competition from new homes.

There was an unusual decline in prices in 2005 and 2006, during the early stages of the housing bust. In the years following the housing bust, prices for used homes eventually fell so rapidly that they became competitive with new homes again.

US new house sales 2024 02 26 price v resale percent

Therefore the sale of new houses has stopped.

In January, 57,000 new homes were sold, without seasonal adjustment, up 3.6% from a year earlier, and only 3% below January 2019. By comparison, sales of existing homes are down 20% from January 2019.

It documents the effectiveness of the strategy of offering homes at a lower price and offering buydowns on the mortgage rate, although they reduce homebuilders' profit margins. But they are in the business of building homes, and they cannot try to wait out this market, as many potential home sellers are trying to do.

US new house sales 2024 02 26 sales nsa

inventory for sale The number of new homes in all stages of construction has stabilized at a very high level. In January, it reached 456,000 households, the same as November, but slightly up from December (not seasonally adjusted).

This inventory translates into a supply of 8.0 months at January levels of sales, which is more than enough supply:

US new house sales 2024 02 26 inventory

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