By Denny Gulino
WASHINGTON (MaceNews) – U.S home resales overall dropped for the fourth month in July though high-end sales were booming just as they are for high-end new homes, as reflected in this week’s run-up for the shares of builders benefiting from higher house prices fueled by the strong demand they can’t meet.
The National Association of Realtors’ monthly report Wednesday was more than a percentage point away from forecasters’ expectations for an increase.
NAR Chief Economist Lawrence Yun said mortgage interest rates that rose earlier in the year to above 4.5% added to the headwinds of short supply for much of the market. The median price for a housing unit is also up 4.5% in a year. While buyers are faced with higher prices and limited choices, Realtors are enjoying higher commissions and in the new-home market, builders are seeing fatter earnings.
The numbers showed how the used-home market continues to bifurcate, with first-time buyers the losers and their pent-up demand not being met, and those buying million-dollar plus homes doing fine. House resales are up 7.6% over a year for those priced at a million dollars or more. Houses in the $100,000 to $250,000 range are down 7.1%.
Counting only single-family homes and not condos, the contrast is much more stark. Million-dollar and above house sales are 16.2% above a year earlier, while $100,000 to $250,000 single family house sales – 38% of all sales – are up just 0.2%.
For new-home builders at the high end, it’s a tails-I-win, heads-you-lose proposition this year, able to profit from higher prices. Toll Brothers, for instance, saw its shares as the leading luxury home builder jump 13% during a single trading session on Tuesday after it reported strong quarterly earnings. Other builders were helped by the halo effect. Shares were backtracking a little Wednesday morning.
Still, even Toll Brother’s shares are well below their 52-week high point as builders in general fight higher material prices, labor and land shortages, higher borrowing costs for mortgages and construction loans and stiffening permitting barriers. New trade disputes and old ones, like that over Canadian lumber, have sent lumber prices soaring. At the low end, NVR, the parent of Ryan Homes, saw its shares decline despite positive quarterly numbers.
New home buying helps drive existing home sales by pushing existing homes left behind into listings. The bottleneck with new production is slowing the entire housing complex and the sector keeps diminishing as a share of the economy . Meanwhile, hundreds of thousands of would-be buyers, particularly among Millennials, grow increasingly frustrated at what seems to them to be a broken housing market.
Although Congress continues to ignore housing and housing finance policy there are increasing signs at the grass roots that it is becoming a political issue, perhaps gaining traction by the next presidential election cycle. The largest industry lobbying groups, like the NAR and the National Association of Home Builders, have largely held their fire up to now.
The number of existing units available for sale has not increased over a year in three years, but the fact that inventories did not shrink in July on an annual basis suggested that supply is stabilizing at an historically low level – with a lot of catching up to do.
July’s sales annualized would be a 5.34 million rate after adjustment for seasonal patterns, the lowest since February 2016. Despite the increase in the population of would-be buyers in the interim, that’s 1.5% less than a year earlier. That annual decline has shown itself for five consecutive months, a barometer of the widening structural cracks in the U.S. housing market and national housing policy.
Existing home sales do not relate to economic growth aside from earnings for Realtors, mortgage brokers and home rehabilitation since the money changing hands does not reflect new production.The monthly report has also lost its luster as a rough gauge of consumer confidence since the link between buying intentions and closings has been disrupted by supply-demand imbalances.