[Puffer Fish]

Right now, there is something interesting happening in the U.S. housing market. (July 2024)

There appears to be excess of too many new homes for sale.

But at the same time, there is still a severe shortage of older homes.

How could these both be true, and why would people be preferring old homes to new homes?
Why aren't people who can't get an old home buying new homes?

There are several likely reasons.

New homes are overpriced and more expensive. It costs more to get a new home, relative to what you get. You do pay a premium for new clean house.
(It also of course costs more to build a new home than it does to buy an older home, everything else being equal)

Many of the newest homes built in the last 9 years are smaller, and not only that but have very little yard space. There are many people who feel very angry about having to pay what they see as a ridiculously huge unaffordable amount of money for a home but then only get a tiny little tract of land with no space.

It's also possible many of these new homes are built in less desirable areas, closer to freeways, or further away from the areas people would prefer to live. This makes sense, because the older homes were built in the most desirable areas, and then when land space started running out, the newer homes had to be built in the less desirable areas.
(California, for instance, has a unique geography where if you go only about 25 to 50 km away from the coast, it starts getting extremely uncomfortably hot and dry)


further reading:
It suddenly looks like there are too many homes for sale. Here's why that's not quite right , by Diana Olick, CNBC, July 9, 2024

[Puffer Fish]

Here are some select excerpts from the article:

Anyone out shopping for a home today knows there is still precious little for sale.
The housing market is just beginning to come out of its leanest few years in history. Inventory of both new and existing homes is finally rising, but there is something suddenly strange in the numbers: The supply of newly built homes appears to be way too high.
The numbers, however, are deceiving...

There is currently a 4.4-month supply of both new and existing homes for sale, according to the National Association of Home Builders, or NAHB. Months’ supply is a common calculation used in the market to measure how long it would take to sell all the homes available at the current sales pace. A six-month supply is considered a balanced market between a buyer and a seller.

Now supply is finally beginning to climb back, but the gains are mostly in the new home market, not on the existing side. In fact, there is now a nine-month supply of newly built homes for sale, nearly three times that of existing homes. New and old home months’ supply usually track pretty closely. New construction now makes up 30% of total inventory, about twice its historical share, according to the NAHB.

"June 2022 recorded the largest ever lead of new home months’ supply (9.9) over existing single-family home months’ supply (2.9)," wrote Robert Dietz, chief economist for the NAHB. "This separation makes it clear that an evaluation of current market inventory cannot simply examine either the existing or the new home inventory in isolation."

First, in 2005, there was a massive runup in home sales, homebuilding and home prices fueled by a surge in subprime mortgage lending and a frenzy of trading in new financial products backed by these mortgages.

The current strange divide in supply between newly built and existing homes is also due to roller-coaster mortgage rates, dropping to historic lows at the start of the pandemic and then spiking to 20-year highs just two years later. Millions of borrowers refinanced at the lows and now have no desire to move because they would have to trade a 3% or 4% rate on their loans to the current rate, which is around 7%. This lock-in effect caused new listings to dry up.

That all came crashing down quickly, resulting in one of the worst foreclosure crises since the Great Depression and causing the ensuing Great Recession. Single-family housing starts plummeted from a high of 1.7 million units in 2005 to just 430,000 in 2011. By 2012, new homes made up just 6% of the total for-sale supply and, even by 2020, housing starts had yet to recover to their historical average of about 1.1 million units. They sat at 990,000.

The share of homes sitting on the market for at least one month has been increasing year over year since March, when growth in new listings accelerated, but demand from buyers remained tepid, as it has been since mortgage rates started rising in 2022.

On the resale market, the supply is lowest in the $100,000 to $500,000 price tier, according to the National Association of Realtors. That is where the bulk of today’s buyers are. Higher mortgage rates have them seeking cheaper homes.

Interestingly, however, while supply is increasing across all price tiers, it is increasing most in that same lower-end price tier, meaning it is simply not enough. As fast as the homes are coming on the market, they are going under contract.

For example, there is just a 2.7-month supply of homes for sale between $100,000 and $250,000, but supply is up 19% from a year ago. Meanwhile, there is a 4.2-month supply of homes priced upward of $1 million, but supply is up just 5% from a year ago.

This explains why home prices remain stubbornly high, even with improving supply. ​

It suddenly looks like there are too many homes for sale. Here's why that's not quite right , by Diana Olick, CNBC, July 9, 2024


another thread: Trump: Biden's Mass Migration Is Skyrocketing Rents, Housing Costs (in Economics & Capitalism , 15 June 2024)