On October 20, the United States released the existing home sales data. Let’s combine the data on new homes in the United States to see what the two data paint the picture of the U.S. housing market, and what are the implications for future housing prices and the U.S. economy.
Home sales in September fell 1.5% month-on-month to an annualized 4.71 million units, the lowest since May 2020 and in line with market expectations. This is also the longest decline since 2008, falling for eight consecutive months. Compared with last year, it has fallen by nearly 24%. However, Yun, chief economist of the National Association of Realtors, doesn't think the housing market is over, and he expects the number to fall further based on the number of existing loan applications.
Looking at the breakdown, sales of low-priced homes fell the most, with sales of homes between $100,000 and $250,000 down 28.4 percent year-on-year, and homes between $250,000 and $500,000 fell 17.9 percent. Houses of 500,000 to 1 million are the strongest, with a year-on-year decline of less than 10%. Obviously, the current inflation and economic problems have a greater impact on low-income groups.
So now that interest rates are so high, are there some people who cannot bear the pressure and are forced to sell their houses? Yes, but the increase was relatively small, only 1%. It seems that the effect of the Fed rate hike will take some time. In addition, among the group of homebuyers, first-time homebuyers are still the main force in this data, and their proportion has also increased by 1% compared with last year, while investment homebuyers have fallen by 2%. This shows that the current decline in sales is mainly due to the unwillingness of people with houses to sell at low prices, and the willingness of people who want to buy houses to invest has also decreased. However, the people with rigid needs are still strong, which also reflects from the side that the US economy and employment environment are still strong.
And if we look at house prices, the median remains at 385,000, which, while down, is still nearly 9% higher than the 354,000 at the start of the year. In this regard, Yun pointed out that this has a lot to do with the shortage of housing. He also said that the decline in sales data this time is very different from 2008, when the inventory of houses was four times what it is now.
The U.S. has been in a housing shortage, which has kept prices rising over the years, until now. America must now build houses on a massive scale to be able to solve the shortage. However, with the interest rate hike by the Federal Reserve, developers' willingness to build houses has also become sluggish. After all, for them, the cost of financing has become higher, while the willingness to buy a house is relatively low. Now building a house will bear great risks. . But it will be too late to dig foundations until the financing cost becomes lower and the market demand rises. At that time, those who want to buy a house can only turn to the existing inventory, and the existing inventory is already in short supply, so the house price will naturally have a long-term driving force.
In the long run, developers are also happy to see a housing shortage. After all, high housing prices can make them more money, so developers are reluctant to increase the supply too much and see housing prices being suppressed. This will also be a factor driving the long-term rise in U.S. housing prices.
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source https://www.reddit.com/r/RealEstate/comments/yc9y39/us_home_sales_fall_but_no_bottom/
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