Prices of New Houses Drop Further, -18% Year-over-Year, Sales Drop, High Inventories Rise Further, Supply Jumps

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Prices of New Houses Drop Further, -18% Year-over-Year, Sales Drop, High Inventories Rise Further, Supply Jumps
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Homebuilders, in order to sell new houses at a decent clip in this new mortgage-rate environment – even as sales of previously owned homes have collapsed because sellers refuse to accept reality – are using a variety of strategies, outlined by D.R. Horton in its Q3 conference call, including:

  • Mortgage-rate buydowns
  • Smaller houses (“smaller product footprints”)
  • “De-amenitizing” the houses (cheaper appliances, floors, countertops, simpler roof, no deck in the back?)
  • And other incentives (free upgrades, etc.)

So the median price of new single-family houses sold in October fell by 3.1% from September, to $409,300 (red line), the lowest since August 2021, down by 17.6% from a year ago, which had been the peak, according to data from the Census Bureau today. The three-month moving average is down by nearly 12% from its peak in December last year (green).

These are contract prices and do not include the costs of mortgage-rate buydowns and other incentives such as free upgrades. But they do reflect the lower price points due to smaller footprints and the “de-amenitizing.”

Sales of new houses – not seasonally adjusted, and not the annual rate of sales – fell to 51,000 houses in October, and while this was up by nearly 19% from a year ago, when the market was freezing up, it was still down by 7% from October 2019.

As you can see in the chart below, these sales levels would be nothing to write home about. But in the new mortgage-rate environment, and compared to the collapse in sales of previously owned homes (-27% compared to October 2019), they’re decent and document the effectiveness of bringing down payments via mortgage rate buydowns, “smaller product footprints,” and “de-amenitizing”:

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