Second thing: inflation. Just when you thought construction-cost growth was coming down, it hit a new record.
By wolf richter For wolf street,
Sales of new single-family homes have been tumbling to low levels for months. In October, they rose 7.5% from September, after falling 11% in September, according to the Census Bureau today. At a seasonally-adjusted annual rate of 632,000 homes, they were down 5.8% from the year-ago low, and down 37% from two years ago.
These sales are based on contracts signed between the buyer and the homebuilder, and they are no indication of how many deals have actually closed. And those sales that are actually close are few and far between amid a huge wave of cancellations. Homebuilders have been lamenting those cancellation rates for months. But those cancellations are not shown here. We’ll get to them in a moment.
Similar declines occurred in the sale of previously owned homes: -34% from peak in October 2020 and -28% from a year ago,
Last week, homebuilders reported a drop in traffic from potential buyers of new single-family homes, according to the National Association of Home Builders. Its index of traffic of potential buyers has declined for eight months in a row, falling below May 2020 levels in November.
During the housing bust 1, post-lockdown-low of April 2020, it was the lowest since 2012. But this time, the decline was much faster during the housing bust 1
Cancellation Spike, Worst in the Southwest,
And many of those people who show up to view a home, and then sign a sales contract, are largely getting second thoughts, followed by buyer’s remorse, followed by cancellation of those contracts. — and the rising number of cancellations doesn’t include new home sales data by the aforementioned Census Bureau, which tracks just signed contracts.
As per Homebuilder Survey by John Burns Real Estate Consulting – With a sample size of about 20% of all new home sales – the cancellation rate rose to 25.6% in October, up from 7.9% in October 2021 and up from 10.9% in October 2019. More than a quarter of the signed contracts have been canceled! chart through Rick Palacios Jr.Director of Research at John Burns (click to enlarge):
Cancellation rates vary greatly by region: in the South West, the cancellation rate rises to 45%. Almost half of all contracts signed are canceled! This was up from a cancellation rate of 9% a year earlier. The cancellation rate in Texas rose to 39% from 12% a year ago.
Such steep increases in cancellation rates render the sales-contract signing data a practically irrelevant figure because a canceled contract is no longer a real sale (Chart via Rick Palacios Jr., John Burns, click to enlarge) ):
From shortage to surplus: Inventories continue to rise.
Inventory for sale in all stages of construction rose 21% from a high in October last year to 470,000 homes, the most since March 2008. Compared to the early stages of the housing bust 1, it was the highest since September 2005. ,
supply of unsold new homes April has been in the 8-10 month range due to a combination of lower sales and a jump in inventory. Supply in October was 8.9 months, housing bust 1 level.
But supply is estimated at how many months it will take to sell current inventory at the current rate of sales — but the current rate of sales is based on contracts being signed, and those contracts being canceled at record rates, and the fact that is that falling sales are fueling a steady upswing in inventory.
Second thing: inflation. Just when you thought…
Construction costs for single-family homes — excluding land costs and other non-construction costs — looked like they peaked in June, and then the spike slowed or stopped, and on a year-over-year basis, Backed the spike from a historic record of 18.3% in June to 16.7% in August. But then it started rising again and set a new all-time high of 18.4% in October. When you least expect it, inflation will continue to surprise you.
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