As the prices of new homes fall, sales rise: Cut the price and they will come.

Price cuts and mortgage-rate cuts reduce sales of pre-owned homes.

By wolf richter For wolf street,

Homebuilders have cut prices, they’ve built at a lower cost, they’ve offered buydowns and incentives on mortgage rates, encouraged to do so by a slump in sales last year, a huge wave of cancellations and an inventory pile up I went. Falling input costs and disordered supply chains have kept their margins in half. And buyers have arrived – aside from buying pre-owned homes, Where sales are down 20% year-on-yearto buy a new house.

average price The number of new single-family homes sold in May fell 7.6% from a year earlier, according to data from the Census Bureau today, and fell 16% from October’s peak to $416,300 in September 2021 . But these prices don’t include mortgage-rate buydowns and other incentives.

The average-price data fluctuates a lot (green line). The three-month average (red line), which strips out some noise to show the trend, is down 6.3% from a year earlier, and down 12% from the peak to $420,200, the lowest since November 2021:

average price The number of new single-family home starts declined 6.6% year-over-year to $487,300, down 14% from last July’s peak.

seasonally adjusted annual rate of sales The number of new homes opened increased 20% year-on-year to 763,000 homes, and was up 23% from 2019.

actual sales – not seasonally adjusted, and not the annualized rate of sales – rose 25.9% year-over-year to 73,000 homes in May, the most since the pandemic bubble burst in the spring of 2021. Compared to May 2019, sales were up 30%.

These are “sell” sales orders, not closed sales. Cancellation is not deducted. Many sell orders in late 2021 and early 2022, which appear in this chart, were then canceled in late 2022, amid a wave of cancellations Rising mortgage rates made buyers reluctant or unable to hold on to those deals at those prices.

Since then, low prices and mortgage-rate buying have encouraged sales, but sales have been down sharply during the pandemic and during the housing bubble 1 from 2001 to 2006. So it’s really nothing to write home about, but they’ve come in well above the lows at the end of last year and well above sales levels in the years just before the pandemic:

inventory for sale Homes in all stages of construction increased by 424,000 homes in April to May, the first month-over-month increase after a six-month decline since the inventory pile up late last year. Compared to May 2022, inventory for sale was down 3%, as lower prices and mortgage-rate buydowns have been able to reduce part of the inventory pile, but The current boom in housing begins Adding more inventory. And it’s a good thing:

supply It has fallen from a massive supply of 10 months last July to 6.7 months in May.

Emphasizing the sale of pre-owned homes. Home builders are professionals. They have to build and sell houses, regardless of the market. And they respond to the market and offer deals – while homeowners sit on their hands and try to outrun this market. And taking advantage of this disconnection, home builders have pulled away buyers who would otherwise have bought pre-owned homes.

And so it makes sense that after a big decline in the second half of last year, construction of single-family homes rose for the fourth consecutive month in May as unsold inventory continues to accumulate. Still below peak during pandemic bubble, Single-family home starts in May were up 18% compared to May 2019,

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