Chart of the Week
An unprecedented disconnect has appeared in the US housing market. Year on year, previously owned home sales have tumbled 15% while new home sales have risen by 34%. Usually, the two lines are strongly connected.
The direction of new-home sales should not mislead us into overestimating the state of the housing market. A closer look at single-family home sales reveals that while new builds have accounted for just under 17% of the figure in the last three months, total single-family home sales are at least 20% below the averages seen in 2019.
With mortgage rates now flirting with 8% following sharp rises, many homeowners are staying put to retain their existing low-rate mortgage, causing short supply in the resale market. As a result, some buyers are choosing new builds.
The overall impact on residential construction spending is likely to be limited as new single-family builds only account for 37% of total spending. 13% of residential spending is on multifamily housing, where building permits are losing steam, and the remaining 50% is largely composed of home improvements and transaction fees, which are much more closely tied to housing resales.
Will momentum in the new-home market remain positive? The reality is that demand drivers look weak, with housing affordability at its worst level in three decades.
Written on October 27, 2023. This is not an investment advice. Opinions subject to change.
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