August 28, 2023

Housing Demand is Still Strong, Even with Higher Rates

The United States Census Bureau released its monthly New Residential Sales report for the month of July, and it showed that signed contracts on new homes rose 4.4%. This number came in better than expectations and just about 1,000 units shy of the best number in 15 months. Sales of new homes are now up 31.5% year over year. On the inventory side, there were 437,000 new homes for sale at the end of June, and at the current pace of sales, there is a 7.3 months’ supply, which is down from 7.4%. However, when looking at completed homes, there were only 75,000. Take the pace of sales versus homes that were actually completed or available supply, there is only a 1.3 months’ supply. Not much at all! Interestingly, 164,000 of the homes sold were not even started yet. The median home price was reported at $436,700, which is down 9% year over year but up 5% month to month. But this isn’t a true gauge of appreciation. Actual appreciation reports show that home prices are setting new all-time highs in most reports.

The National Association of Realtors released their Existing Home Sales report, which showed closings on existing homes fell 2.2% in July, which was slightly weaker than estimates. On a year-over-year basis, sales are down 16.6%. At arm’s length, this looks like a poor report but when looking deeper you can see that the pace of sales is being kept down by inventory, which is at roughly half the levels we saw in 2019. Inventory levels increased 3.7% last month from 1.08 million to 1.1 million but remain very low. This report showed that there is a 3.3 months’ supply of homes, which is tight because 4.6 months is considered normal. Looking at live or active listings, there are only 582,000, as many of the homes counted in existing inventory are under contract. The median home price was $406,700, which is down almost 1% from the previous month, but is up almost 2% from last year. Homes remained on the market on average for 20 days, up slightly from 18 days, but still pointing to strong demand. 74% of homes sold in less than 30 days, which was down from 76% reported last month. Homes sell quickly when they are priced correctly. First-time homebuyers accounted for 30% of sales, up from 27% in the previous report.

At the end of the day, there is still a superfluous amount of housing demand that is highly outweighing supply. If there were more homes available, they would be purchased, even in the face of higher interest rates.

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By: Jon Iacono
A Family

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