The U.S. residential real estate market is now facing a significant downturn, and here’s why you should pay attention. This is in addition to the ongoing scenario playing out in commercial real estate crisis.
Recent data reveals a sudden increase in the number of new homes for sale, and home builders are selling off their inventory, raising concerns about a possible crash.
This means that the ‘active inventory’ of homes on the market is spiking upwards.
More Homes on the Market – What Does It Mean?
In November 2023, around 590,000 new homes were sold, but that’s a 12.2% drop from October. The price of these homes fell to $434,000, which is 12.5% less than what it was a year ago.
Now, at the end of November, there were 451,000 new homes up for sale – that’s a lot! In fact, it’s enough to meet the demand for about 9.2 months, which is a big deal and signals huge problems developing in the residential real estate market.
Builders are Selling More – Is That a Problem?
Yes, it is.
Home builders, who usually build and sell houses, have suddenly started selling more houses than before. This wasn’t expected, and it could be a sign that they are worried about the market.
They used to keep some houses to control prices, but now they’re liquidating them quickly, and that’s not normal.
History Tells Us This is a Big Problem
Whenever we’ve seen lots of new homes in the market like this in the past, it often coincided with significant economic troubles. So, this history lesson tells us that we might be in for a tough time in the housing market.
Why Prices are Dropping and Where
The price of these new homes has fallen, especially in places like California. In some areas, prices have dropped by 15% or more! This is happening because there are too many homes available compared to people who are looking to buy a home.
What About Mortgage Rates?
Mortgage rates, or how much it costs to borrow money to buy a home, are also important.
Right now, rates are at 6.5%, which is not too high, but it’s not too low either. In the meantime, new mortgage applications are at record lows not seen in decades.
This means that home sellers will begin dropping prices like never before. It tends to happen slowly at first, then all of a sudden as sellers capitulate and become desperate to sell their homes.
What Does This Mean for You?
If you’re thinking about buying or selling a home, this situation could impact you. Prices might continue to drop, and it might be harder to sell a house.
On the other hand, if you’re looking to buy, it could be a good time to find a more affordable home.
The real estate market is going through some big changes, and it’s essential to be aware of them. Keep an eye on the news and any updates about the housing market in your area. If you’re planning to make a move in the real estate world, understanding these changes can help you make smarter decisions.
Supporting Data
Historical Context
- Historical patterns show that elevated levels of new homes in the market, as seen in November, tend to coincide with severe recessions.
National Level
- Active listings reached a three-year high at 752,000 in November 2023.
- New single-family home sales in November were at a seasonally adjusted annual rate of 590,000.
U.S. Census Bureau’s November 2023 Data
- Median sales price for the 590,000 new homes sold was $434,000.
- Number of new houses for sale at the end of November was 451,000, indicating a 9.2 months supply.
California
- Statewide, a spike in new homes hit the market in November.
- Prices in various counties, including San Francisco, San Mateo, Alameda, Butte, Contra Costa, experienced significant drops, contributing to six of the largest price drops in the state.
- The entire state of California has a lack of active listings, contributing to the broader issue of an active listing shortage nationwide.
Texas
- Active listings in Texas surpassed 2019 levels, with Austin having 5,800 active listings as of the end of November.
- Williamson County, Texas, experienced a peak-to-trough price drop of 16%, putting it in the crash territory.
New York
- New York County, New York, saw the largest peak-to-trough price drop at 22%.
Pennsylvania
- Cambria County, Pennsylvania, witnessed a peak-to-trough price drop of 14%.
