Expect Huge Negative Revisions to New Home Sales as Sales Crash and Orders Cancelled – Mish Talk
New Home Sales data from Census Department, chart by Mish
Rick Palacios Jr., Director of Research at John Burns Real Estate Consulting, has an excellent Tweet thread on what’s happening in housing.
Tweet Thread
- June home builder sentiment and survey results are in. Top themes: 1) A lot more new home buyers cancelling. 2) Price cuts becoming fairly common. 3) Drop in demand finally cooling construction cost pressures (builder layoffs also happening).
- #Atlanta builder: “Someone turned out the lights on our sales in June!”
- #Austin builder: “Sales have fallen off a cliff. We’re selling 1/3 of what we sold in March and April. Trades are more willing to negotiate pricing since market has adjusted significantly past 60 days.”
- #Birmingham builder: “Sales have fallen 75% the last two months in a further out community.”
- #Boise builder: “Sales have slowed tremendously. Builders are dropping prices and halting new starts. Seeing prices drop on labor due to slowing of home starts. Expecting 15% to 20% reduction in most costs.”
- #Charlotte builder: “This recession is looking like and feeling like a big long five year depression.”
- #ColoradoSprings builder: “Amazing how fast a market can change with such a rapid increase in rates. So many people were taken out of the market. Most builders will go to suppliers/trades and ask for rollbacks [on costs].”
- #Dallas builder: “Framing labor has become readily available, suggesting housing starts slowdown is finally showing its typical signs. Haven’t raised prices in 3 months.”
- #DesMoines builder: “Starting to see [construction] trades hold labor prices for us as they are fearful of a downturn.”
- #FortMyers builder: “Investor sales have stalled.”
- #GrandRapids builder: “Believe we’re on the edge of cost reductions. Making every effort to refuse further [cost] increases and pushing for decreases in all areas that have seen significant two year run up.”
- #Greenville builder: “Traffic has slowed from red hot. Feels different for sure, but it’s more like a normal market.”
- #Harrisburg builder: “Sales decreased to 50% of what they were 3 months ago. Traffic is down and we’re only moving spec homes after dropping prices. No one is buying to-be-built homes at this time.”
- #Houston builder: “With the exception of concrete, [construction costs] appear to be stabilizing. Lumber is trailing downward, which is good because we’re going to need that reprieve for buying down mortgage rates to get buyers qualified.”
- #Kennewick builder: “Sales have been very slow, and inventory is rising. Repricing our houses to try and find the new market.”
- #Melbourne builder: “Our investor sales have stalled.”
- #Nashville builder: “Scary times. Hoard cash and hang on for the ride! National builders are cutting staff and offering buyers incentives. Move-up buyers are now practically non-existent due to rising rates in comparison to their existing rate.”
- #Phoenix builder: “Some builders are already cutting staff. Cancellations are extremely high. Dismal traffic and sales climate.”
- #Reno builder: “With the market slowing, we’re expecting to see costs stabilizing and labor become more available.”
- #RiversideSanBernardino builder: “We’ve reached the top in pricing.”
- #SanDiego builder: “Fewer people in the market than before, but we are comparing against a market that defied any sense of normality.”
- #StLouis builder: “Expecting to see opportunities for lower costs coming in the near future as demand cools and manufacturers and trades see backlogs shrinking.” THE END
Move Up Buyers
About Austin
#Austin builder: “Sales have fallen off a cliff. We’re selling 1/3 of what we sold in March and April. Trades are more willing to negotiate pricing since market has adjusted significantly past 60 days.”
“Danielle, here in Austin my thought is some of this new inventory could be landlord/investment properties hitting the market because of newly adjusted, sky high property taxes where the investment math doesn’t make sense anymore.“
Real Estate is Local Except
Real Estate is Local Except When it Isn’tTM
The key take away from Rick Palacios Jr. is malaise is national, not local. Red hot markets turned all across the country with the rise in mortgage rates.
Phoenix may be the poster child for this bust with extremely high cancellations.
“Some builders are already cutting staff. Cancellations are extremely high. Dismal traffic and sales climate.”
Expect Revisions
On June 24, I reported New Home Sales Jump 10.7 Percent in Big Upward Surprise
The chart shows a reported bounce, but from a major downtrend.
Scroll to Continue
In terms of activity, existing home sales dwarf new home sales in activity. On June 21, I noted Existing Home Sales Skid Another 3.4 Percent in May, Down Fourth Month
- Existing-home sales fell for the fourth straight month to a seasonally adjusted annual rate of 5.41 million.
- Sales are down 16.8 percent since January.
Walking Away 2022 Style
Q: Given cancellations, expect major revisions. Why?”
A: New home sales are reported at signing. People are walking away from purchase agreements.
The 30-year fixed rate is down to 5.77 percent from a peak of 6.11 percent. But up from 2.88 percent a year ago.
Builders are building homes very few can afford, thus the walk-aways.
Expect a Long But Shallow Recession With Minimal Job Losses
Housing reports provide more strong evidence a recession has started.
From a jobs standpoint I expect a Long But Shallow Recession With Minimal Job Losses.
From a stock market perspective, I expect things will be brutal.
For discussion, please see Artificial Wealth vs GDP: Why Earnings and the Stock Market Will Get Crushed
This post originated at MishTalk.Com.
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