Phoenix Housing Market: New Single-Family Home Sales Increased 10.7% in May

 

So far, the widely predicted demise of the US housing market has been exaggerated. Sales of new homes broke a four-month losing streak in May 2022, posting a 10.7% gain to easily beat consensus expectations. Moreover, sales in prior months were revised up as well. Using April's original reading of 0.591 million, today's headline gain would have been 17.8%.

 

Housing Market Gaining Footing

While it's too early to tell from just one month, the housing market may be beginning to find some footing amid declining affordability, with today's increase marking the first gain so far in 2022. While rapidly rising prices have been an issue in the housing market throughout the COVID-19 pandemic, 30-year mortgage rates now sit just below 6%, adding to the burden.

 

Median Prices

While median sales price growth has decelerated from a year-over-year peak of 24.2% in August, prices were still up 15.0% in the twelve months ending in May. The median price of new homes sold was $449,600 in May. The average price of new homes sold was $511,400, up 14.8% versus last year.

Assuming a 20% down payment, the rise in mortgage rates and home prices just since December amount to a 40% increase in monthly payments on a new 30-year mortgage for the median new home. That makes today's headline number even more impressive.

 

Why New Home Sales Are The Best Indicator Of The Housing Market

Also keep in mind that new home sales are a very timely barometer of the housing market because they are counted when the contract is signed, rather than when the contract is closed, like with existing homes. That said, if the Federal Reserve is hoping to get housing inflation under control through higher interest rates, the progress has been slow.

The main problem is still that buyers are stuck dealing with very few options when it comes to completed homes, and demand remains high. It's true that overall inventories have been rising recently and now sit at the highest level since 2008. However, almost all of this inventory gain is from homes where construction has either not yet started or is still underway. Doing a similar calculation with only completed homes on the market shows a months' supply of a meager 0.6, near the lowest level on record back to 1999.

 

Good News: Builders Ramping Up Construction Activity

The good news is that builders have been ramping up construction activity to help meet demand, with the total number of single-family homes under construction at the highest levels since 2006. In time, that added supply will facilitate more sales while continuing to slow the pace of new home price appreciation. Ultimately, we think the market will to be able to weather the headwinds of higher mortgage rates in 2022, with sales of new homes only slightly down versus 2021.

   

Guest post written by Michael Maehl.

Mike Maehl’s investment career began in 1973 with his training at 120 Broadway in New York after graduating from Northern Illinois University in 1967 and serving in Vietnam as an infantry platoon commander in the Marine Corps.

Mike joined Opus 111 Group as a Senior Vice President and head of its Spokane office in 2008. In 2020, Mike established an additional office in Arizona and actively serves clients in both locations. He hosts a weekly hour-long call-in program on investing, the markets and the economy called ‘Money Management’ on Saturdays at 9am Pacific. He can be heard live online by going to kxly920 and clicking on listen.

Contact him at m.maehl@opus111group.com for more information.