🏡 New Home Sales CRATER 📉 - 🏘 JD's Market Pulse
For the week of August 29, 2022
For the week of August 29, 2022
NEW HOME SALES CRATER
“Even if you are on the right track, you will get run over if you just sit there.”—Will Rogers, American vaudeville performer, actor, and humorist
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NATIONAL MARKET UPDATE
New Home Sales fell 12.6% in July, hitting the lowest sales rate since 2016, put to declining affordability. But inventory rebounded to the highest level since 2008, translating to 10.9 months of supply, up 81.7% from a year ago.
The Pending Home Sales index of signed contracts on existing homes dipped just 1.0% in July. The National Association of Realtors Chief Economist feels, “we may be at or close to the bottom in contract signings.”
Pending home sales dropped slightly by 1.0% from June. It was the second straight monthly decline and the eighth in the last nine months.
Pending sales fell in three of four major regions, with the West posting a small increase.
Compared to the prior year, contract signings declined by double digits in each region, with pending sales in the West down 30%.
Freddie Mac notes: “The combination of higher mortgage rates and the slowdown in economic growth is weighing on the housing market.” But “there are still potential homebuyers on the sidelines waiting to jump back into the market.”
Economic Notes
Fed can’t fix fiscal-driven inflation: Jackson Hole Paper (link)
Powell: "While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses."
8/29 - DJIA closes 142 points lower as sell-off continues, surging Treasury yields reflect mounting rate fears
Volatility Index (VIX) shoots up 2.35% go 26.16
Inverted Yield Curve Watch
30 Year Treasury Yield: 3.253%
10 Year Treasury Yield: 3.115%
5 Year Treasury Yield: 3.263%
2 Year Treasury Yield: 3.429%
The 2 year and 10 yield remain inverted with a spread of 31.4 bps.
Local Market Update for Southern Nevada
(Construction is underway for a new housing community along Via Inspirada at Gallarate Drive, on Tuesday, August 23, 2022 in Henderson. (Bizuayehu Tesfaye-LVRJ)
Las Vegas homebuilders’ sales keep tumbling (LVRJ)
Last month, Southern Nevada builders sold the fewest homes in at least two years and now, fears of more housing industry layoffs have started to swirl.
Builders logged 434 net sales — newly signed purchase contracts minus cancellations — in July, down 61.5 percent from the same month last year, according to figures from Las Vegas-based Home Builders Research.
This marked the fourth consecutive monthly sales drop and the lowest tally “since the start of the pandemic,” the firm reported.
“The slowdown is real and the effects are real,” Home Builders Research President Andrew Smith wrote in the report.
Builders also pulled 539 new-home permits last month, down 50 percent from July 2021, indicating a shrunken construction pipeline.
There have been hundreds of layoffs nationally in the housing industry, and “word has also started to get out” in Southern Nevada that builders and contractors are “having to come to these difficult decisions,” according to Smith.
With builders selling fewer houses and pulling fewer construction permits, “we unfortunately will not be surprised to hear of more downsizing in the near future,” he wrote.
‘Sharp drop’ in sales
Homebuyers are pulling back locally and nationally as higher mortgage rates wipe out the cheap money that fueled America’s unexpected housing boom after the pandemic.
Across the U.S., the pace of builders’ sales last month dropped 12.6 percent from June and 29.6 percent from July 2021, federal data shows.
All told, sales fell to the lowest level since early 2016, the National Association of Home Builders reported.
“The sharp drop in new home sales is another clear indicator that housing is in a recession,” Danushka Nanayakkara-Skillington, the association’s assistant vice president for forecasting and analysis, said in a news release Tuesday.
On the resale side, Southern Nevada is seeing fewer home purchases, fast-rising inventory, plenty of price cuts and more negotiating power for buyers.
Amid the pullback, sales prices fell month to month in July for the second consecutive time after not dropping for more than two years.
The median sales price of previously owned single-family homes — the bulk of the market — was $465,000 last month, down 3.1 percent, or $15,000, from June, according to trade association Las Vegas Realtors.
Across the U.S., resales “sagged” for the sixth consecutive month in July, the National Association of Realtors reported.
‘Unseasonably low’
Fueled by low borrowing costs — and by an influx of out-of-state buyers as people worked from home — Las Vegas’ housing market accelerated to its most frenzied pace in years in 2021.
Prices hit new all-time highs practically every month, buyers flooded properties with offers, houses sold rapidly, and the annual number of resales hit a record high.
Amid the buying spree, homebuilders put buyers on waiting lists, regularly raised prices and in some cases, drew names to determine who could purchase a place.
However, house hunters started hitting the brakes this year as mortgage rates climbed higher.
The Federal Reserve has been raising interest rates in an effort to cool inflation, and in the housing market, borrowing costs have fluctuated but are well above last year’s rock-bottom levels.
The average rate on a 30-year home loan last month was 5.41 percent, down from 5.52 percent in June but up from 2.87 percent in July 2021, according to mortgage buyer Freddie Mac.
Locally, builders’ sales tally last month was “unseasonably low,” and their asking prices “have started to plateau,” Smith, of Home Builders Research, reported.
Some builders are still raising prices, “but more and more are adjusting in the other direction,” he wrote. (Eli Segall - LVRJ)
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Absorption Rate
The current absorption rate for the Southern Nevada market the past four weeks is 21.00%, down -1.87% from last week's absorption rate. This marks ten consecutive weeks of a declining absorption rate.
A market with an absorption rate at or above 20% is typically called a seller’s market, whereas an absorption rate below 15% signals a buyer’s market.
Each week we will update the current median price for the current month. Keep in mind the majority of sales occur at the end of the month, so official numbers will be published on the first Monday of each month.
Current August Median Prices
Single Family: $450,000 (Down from July of $465,000)
Condo: $235,000 (Down from July of $238,978)
Townhouse: $324,500 (Down from July of $329,000)
The past 24 weeks have seen an increase of residential resale inventory available on the open market in Southern Nevada. Chart below shows total available inventory to total weekly closed sales. (Last updated August 22, 2022)
As of August 29, 2022, there are currently active (%’s compared to 8/1/22):
8,370 Single Family Homes +7.22%
1,139 Condos +10.62%
769 Townhouses +12.10%
281 Manufactured Homes +4.07%
446 High Rise Units +3.48%
97 Multiple Dwellings -10.18%
2,584 Parcels of Land +6.95
3,028 Rentals On Market +12.44
Past Seven Days Market Watch (%’s compared to 8/1/22):
1,148 New Listings -15.09%
229 Back On Market -20.80%
97 Price Increases -12.61%
1,779 Price Decreases -16.75%
841 Accepted an Offer -22.52%
626 Sold -22.52%
88 Expired -53.68%
494 Taken Off Market -5.18%
80* properties are coming soon -33.33%
This week, there are 116 more active residential resale properties on the market compared to one week ago for a total of 11,102, an increase of 1.01%.
*Properties coming soon do not indicate all of the upcoming properties. These are listing that are entered into the MLS prior to list date.
REVIEW OF LAST WEEK
FED CHAIR SPOOKS STOCKS... At the Fed's annual Jackson Hole Symposium, Chair Jerome Powell confirmed rate hikes would continue "until the job is done" of getting inflation down to 2%. Stocks tanked big time and with good reason.
Powell: "While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses." But that won't restrain him.
Inflation did show signs of moderating. PCE Prices retreated to 6.3% annually, Core PCE (excluding food and energy) dipped to 4.6%. Michigan Consumer Sentiment rose to 58.2, but that's down from 70.3 a year ago.
The week ended with the Dow down 4.2%, to 32,283; the S&P 500 down 4.0%, to 4,058; and the Nasdaq down 4.4%, to 12,142.
Bonds fell sharply, the 30-year UMBS 4.5% down 0.79, to $99.31. After declining last week, the national average 30-year fixed mortgage rate sprang back up in Freddie Mac's Primary Mortgage Market Survey. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
DID YOU KNOW… The National Association of Realtors reports the inventory of unsold existing homes rose to 1.31 million by the end of July, or the equivalent of 3.3 months at the current monthly sales pace.
THIS WEEK’S FORECAST
CONSTRUCTION SPENDING, MANUFACTURING, JOBS ALL SLOW... For July, Construction Spending is expected to slip a bit overall, but we'll see how the residential part fares. The ISM Manufacturing Index should still show expansion in that sector, but at a slower rate. The same goes for July Nonfarm Payrolls where job growth is forecast to diminish.
In four of the last six recessions, home prices actually appreciated, only falling during the early 90s and the housing crash in 2008. Mortgage rates, though, declined during each of the previous recessions.
If you have questions about buying or selling a home in today’s market, let’s connect.
FEDERAL RESERVE WATCH
Forecasting Federal Reserve policy changes in coming months. Based on Chair Powell's comments, Wall Street now sees a three-quarter percent rate hike next month, but then small bumps through the end of the year. Note: In the lower chart a 61.0% probability of change is a 61.0% probability the rate will rise. Current rate is 2.25%-2.50%.
AFTER FOMC MEETING ON: CONSENSUS
Sep 21 3.00%-3.25%
Nov 2 3.25%-3.50%
Dec 14 3.50%-3.75%
Probability of change from current policy:
AFTER FOMC MEETING ON: CONSENSUS
Sep 21 61.0%
Nov 2 91.5%
Dec 14 85.3%