What's Going On? New Home Sales Rise While Existing Home Sales & Condos Plunge

EDITOR NOTE: Sales for new homes rose in May year-over-year, the operative word being “new.” Sales of existing homes seem to have plunged, suggesting that home buyers would rather avoid those homes that have been lived in. Fears of COVID-19 probably constitute a big factor in this preference. Is it a well-founded sentiment? How long might it last? While many people seem to be dismissing COVID-19 on a local scale (not wearing masks), it’s interesting to see how these fears are seeping out toward larger-scale purchases.

Sales of new single-family houses rose 12.7% in May, compared to May last year, to a seasonally adjusted annual rate of sales of 676,000 houses, according to the Commerce Department this morning.  There has been reporting by homebuilders on interest in new houses, as some home buyers sought to avoid buying someone else’s home due to the issues of the pandemic, such as social distancing requirements and the fear of spreading or catching the virus. The pandemic-induced “move to the suburbs” is also said to contribute to interest in new houses.

This increase in new house sales occurred even as sales of existing homes  plunged 26.6% in May, the steepest plunge since 2008, to 3.91 million homes seasonally adjusted annual rate, the lowest since the depth of the Housing Bust in October 2010, with house sales -24.8% and condo sales -41%.

Then there’s the coming revision. In the new house sales data, revisions the following month tend to be large, and so today, April’s new house sales were chopped from 623,000 reported a month ago to 580,000 today, the worst April since 2016. So, May sales will have to be looked at again in revised form a month from now.

Over the longer horizon, the massive boom in multi-family housing – including the condo and apartment towers that have sprouted like mushrooms in urban centers around the US – has replaced a significant portion of demand for single-family houses.

Single-family house sales in May 2020 were on par where they’d been in the 1970s. The sales peak occurred in July 2005, at 1.39 million houses sold, seasonally adjusted annual rate. Long-term, this hasn’t exactly been a booming business, in terms of numbers of units sold:

Median price below where it was in May 2017.

The median price of new houses has been in the same range since 2016, with the high occurring in late 2017. In May, the median price ticked up 1.6% year-over-year to $317,900, below where it had been in May 2017 ($323,600). The first time the median price exceeded that level was in April 2016:

Plenty of inventory of Spec Homes

The supply of unsold new houses declined to 318,000 seasonally adjusted, for a supply of 5.6 months at the current rate of sales. Four months’ supply of spec homes has historically been more than plenty:

Whether this much-discussed pandemic-induced mass-exodus from condo towers and other high-density multifamily housing in urban centers to single-family houses in suburbs or even distant smaller towns – empowered by working-from-home – becomes a real trend with staying power remains to be seen.

There are certainly some people who made this move recently. Some of it has been happening for years as people start families and want to live in a house. And the reverse has been happening for years as empty-nesters and others move from a house into a condo or apartment tower to enjoy the panoramic views, be in the middle of urban life, and walk to work.

Whether the pandemic changes these dynamics in a visible way and over the longer term – not just for a month or two – will be one of the most far-reaching developments, with big implications far beyond the housing market.

Originally posted on Wolf Street