Much-Needed Clarity for Real Estate Watchers

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By the end of April, real estate watchers who hadn’t been paying close attention might have headed into the weekend thinking that home prices weren’t rising as quickly as expected. Or they might have thought the opposite. Likewise, mortgage rates again were on the rise (or perhaps they were headed south). And the volume of home sales? Up, surprisingly up! Or perhaps not…

Mortgage News Daily’s Friday edition performed a genuine public service for readers doing their best to keep up with the latest real estate moves. “Disconnect Between Home Sales, Prices, and Rates” demystified the apparently conflicting information in digestible language. The reports, in a nutshell:

  • The one getting the most play with watchers — the March New Homes Sales number—grabbed the most attention by registering “over 1 million” for the first time in 15 years.
  • Countering that, the volume of March Existing Home Sales fell below December’s. That explained why some reports listing one “Home Sales” number as an undifferentiated statistic could be reported any which way.
  • Even so, median New Home Prices were reported as flat. Since they had actually fallen in previous months, the resulting median prices were “basically unchanged” from a year ago.
  • At the same time, the widely-followed Federal Housing Finance Agency’s House Price Index was “breaking records.” The FHFA’s supporting graph ended in a nearly vertical line that could have doubled as a SpaceX launch trajectory. That was explained by the fact that FHFA’s data “doesn’t capture new home prices at the time of construction”—instead, tracking new home data separately.

The resulting encouraging/discouraging, up/down reporting could leave market watchers with conflicting impressions. But when you get down to it, the only piece that’s truly puzzling is why new home prices haven’t risen more. The lack of inventory explains the steady climb of existing home prices—but wouldn’t their rise pull new home prices up, too?

MND supplied the answer. It’s size. New homes have been built with footprints averaging 200 square feet smaller than they were in 2017—on lot sizes even smaller. real estate observers know that the pandemic created a home office phenomenon that spawned a desire for larger—not smaller—homes. Add in a couple of complicating factors—like lumber prices “in the insanity zone” offset by lower home loan rates—and the result is complicated but understandable: price moderation, followed by an uptick in new home sales. Listings may reflect all of the above, but the local result isn’t mystifying: offerings that are drawing buyers and opportunities for sellers.