The correction of the housing market has just entered a new turning point
“Depending on market dynamics and backlog levels in each community, we are becoming more aggressive with pricing ahead of the spring sales season, to generate new orders.” KB Home told investors in January after publishing disappointing fourth-quarter results.
Fast forward to February and it looks like we’ve seen housing market adjustment—that have seen new And Existing home sales contracts at a near-record rate in the second half of last year—moving into a new phase.
What’s happening? Active construction discounts along with incentives, like buy back mortgage interestare helping construction companies increase sales again.
This increase in new home sales could mean house price adjustment New construction side is losing steam. Or at least lose steam for now.
“Builders today mainly attach importance to the issue of price. And we think that nationally, home prices — on the new home side, the network of incentives — are down about 10% from their peak,” said Rick Palacios Jr., head of research at John Burns Real Estate Consulting, said. said in a video posted on Saturday. “Maybe there aren’t many runways there anymore.”
Let’s be clear: Palacios is talking about adjusting house prices in the new home team. On the current side or “reselling”, he said that the adjustment of house prices has not been directed yet.
“We still think there are more [home] However, the price correction will appear on the resale side. And the resale market always has its downsides when it comes to [home] prices,” said Palacios.
Unlike homebuilders, who need discounts to move unsold inventory, existing home owners are often resistant to such cuts. That resistance is why existing home prices often bottom out last during a housing market downturn.
Let’s take a closer look at the correction taking place on the current side. Here is the data.
For 124 consecutive months, extending from the bottom of the previous housing boom in February 2012 to the top of housing boom due to pandemic in June 2022, existing US single-family home prices, measured in Seasonally adjusted Case-Shiller national home price indexposted positive monthly home price increases.
That record is now over.
As of the most recent reading in November 2022, existing single-family housing prices are down 2.5% from their all-time high in June 2022. On the one hand, that lowers the score. second largest home price adjustment after World War II. On the other hand, it’s a slight correction from the 26% peak-to-trough decline in home prices between 2007 and 2012.
It will be six weeks until the Case-Shiller readings for January are released. Preliminary data, however, suggests that adjustment to house prices on the existing home side could ease into 2023 as well.
An analysis of Zillow Home Value Index Data via Luck (see chart above), found that 79% of the nation’s 200 largest housing markets saw house prices fall month-over-month in September. That number has dropped, slowly but surely.
In October, 76% of that large market saw home prices fall. In November and December, this rate dropped to 64% and 67%, respectively. In January, however, only 47 percent of the nation’s 200 largest housing markets recorded a month-over-month decline in home prices.
Last year’s mortgage rate shock, saw 30-year average fixed mortgage rate spike from 3% to over 6%, which actually caused a correction in house prices. That said, the correction continues separate: Some the market is witnessing a sharp correctionwhile other markets haven’t seen much.
“If you’re anywhere in Texas or west of Texas, you can drop more… if you’re anywhere in East Texas, you might not lose as much, if at all,” Palacios said.
Split housing adjustment that’s why KB Homepageconcentrates more of its business in the fast-correcting West Coast and West Mountain markets, which have seen higher cancellation rates than peers, which do more business in the Midwest and East North.
When it comes to house price adjustments, there’s still one big wildcard: Mortgage interest rate.
“Previous price drops combined with substantial interest rate cuts are helping to stabilize new home prices (in some markets). [mortgage] stick rate about ~7% or above, deeper [new and existing] Discounts can be requested,” said Palacios Luck.
Want to be updated on housing market adjustment? follow me on Twitter In @NewsLambert.
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