{"id":3939,"date":"2023-02-25T00:38:20","date_gmt":"2023-02-25T00:38:20","guid":{"rendered":"https:\/\/frankbuysphilly.com\/higher-rates-flip-the-homebuilders-fortunes-again\/"},"modified":"2023-02-25T00:38:20","modified_gmt":"2023-02-25T00:38:20","slug":"higher-rates-flip-the-homebuilders-fortunes-again","status":"publish","type":"post","link":"https:\/\/frankbuysphilly.com\/higher-rates-flip-the-homebuilders-fortunes-again\/","title":{"rendered":"Higher rates flip the homebuilders\u2019 fortunes (again)"},"content":{"rendered":"


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While the homebuilders weren\u2019t surprised by the better-than-estimated new home sales report<\/a> released Friday, some people were a bit shocked. But the forward-looking purchase application data was getting better from Nov. 9 up until the early part of February as mortgage rates<\/a> fell from 7.37% to 5.99%. Now, of course, that has all changed quickly. <\/p>\n

On CNBC<\/strong> Friday morning<\/a>, I highlighted that whatever data stabilization we had at 5.99%, it\u2019s now gone in the blink of an eye. <\/p>\n

The homebuilders are crafty people (pun intended). They move homes like they are commodities, not as a secured form of shelter they live in. They don\u2019t ever have to have the conversation about how low their total payment is in the new home they\u2019re buying, unlike some of their buyers (which explains higher cancellation rates).<\/p>\n

To combat higher mortgage rates, builders have been cutting prices and buying down rates to move product. They still have a lot of work to do here, so we shouldn\u2019t expect anything good to come from the housing permits side of the economy in 2023.<\/p>\n

New home sales<\/h2>\n

From Census<\/a><\/strong>:\u00a0Sales of new single-family houses in January 2023 were at a seasonally adjusted annual rate of 670,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.2 percent (\u00b120.4 percent)* above the revised December rate of 625,000, but is 19.4 percent (\u00b113.1 percent) below the January 2022 estimate of 831,000.<\/em><\/p>\n

As I have stressed for months, the new home sales levels are historically low and don\u2019t account for the cancellation rate. Just like in the existing home sales market, when sales are low, anything positive on the rate side can move the market in a positive direction.\u00a0<\/p>\n

This goes into my low housing bar theme for 2023 and why we need context with sales data. If sales are working from an elevated number, like what we saw from 2003-2005, it\u2019s a different subject altogether. As we can see in the chart below, we are still below the recession levels of 2000 and really trending at 1996 levels. And we have a lot more workers now than we did then.<\/p>\n


I wouldn\u2019t read too much into the fact that this new home sales report beat estimates, but I would say that in the future, if mortgage rates get back toward 6%, the homebuilders have creative ways to sell their homes that the existing home seller might not be inclined to do.<\/p>\n

Homebuilders’ for-sale inventory and months\u2019 supply<\/strong><\/h2>\n

The seasonally-adjusted estimate of new houses for sale at the end of January was 439,000. This represents a supply of 7.9 months at the current sales rate.<\/em><\/p>\n

This is a positive trend: the homebuilders are working through their supply and while their monthly supply levels are still too high to issue new permits, we are making progress here.<\/p>\n


However, some context is needed here as well. Here is a breakdown of the supply data:<\/p>\n