That arbitrage is now happening among homebuyers. But regular homeowners wanting to sell haven’t figured it out yet.
Homebuilders, unlike homeowners that want to sell a house, are not emotionally attached to prices. Their business is to build homes and sell them, no matter what interest rates are doing, and they cannot sit there and wait, praying, “and this too shall pass.”
So, unlike many homeowners that are thinking about selling, homebuilders started cutting prices in the fall of 2022, and they used mortgage-rate buydowns and other incentives to stimulate demand for their unsold inventory that had been piling up. And it worked. Cutting prices enough always works.
The median price of new single-family houses sold in April fell to $420,800, down by 8.2% from a year ago, and down by 15% from the peak in October, according to data from the Census Bureau today. This does not include the mortgage-rate buydowns. A different measure, the average price of new single-family houses dropped by 11% year-over-year to $501,000.
Sales of new houses, in response to lower prices, mortgage-rate buydowns, and incentives, ticked up to a seasonally adjusted annual rate of 683,000 houses.
Not seasonally adjusted, and in terms of actual sales, not annual rate, homebuilders sold 62,000 houses in April, just a hair below April 2019, but far below the booms during the pandemic and during Housing Bubble 1 from 2001 through 2006:
Inventory for sale in all stages of construction declined to 422,000 houses, not seasonally adjusted, roughly even with April last year, as homebuilders succeeded in working down part of their pileup of inventory.
Supply has come down too, from an astronomical 10-month supply last July, to 7.6 months in April.
Arbitrage with previously owned homes
Homebuilders, by cutting prices when homeowners were loath to, have attracted some buyers that would have bought a previously owned home.
That arbitrage is now happening among homebuyers: even as price cuts and incentives brought sales of new houses back to 2019 levels, sales of existing homes fell again in April to the dismally low levels of the bottom of the lockdowns and then of Housing Bust 1.
While prices of previously owned houses have also dropped, they’re down only 2.1% year-over-year, and sales have plunged, as potential sellers are still trying to outwait this situation, while at least some buyers have switched to buy from the pros that know how to offer deals.
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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