Massive cancellations spoil the already low sales of new homes. Inventory overload at Deep Housing Bust level 1. Drop in customer traffic

Lambert here: More problems….

Wolf Richter, editor of Wolf Street. Originally published on Wolf Street.

Sales of new single-family homes have been zigzag down for months. They rose 7.5% in October from September, after falling 11% in September, according to the Census Bureau. At a seasonally adjusted annualized rate of 632,000 homes, they are down 5.8% from an already low level a year ago and 37% from two years earlier.

These sales are based on signed contracts between the buyer and the developer, and they do not indicate how many of these deals actually closed. And those sales that do close are much lower amid the huge wave of cancellations. Developers have been lamenting these cancellation rates for months. But these cancellations are not reflected here. We’ll get to them in a moment.

A similar decline occurred in sales of previously owned homes: -34% from October 2020 peak and -28% year-over-year..

According to the National Association of Home Builders last week, home builders reported a sharp drop in the traffic of potential buyers of new single-family homes. Its Lead Traffic Index fell for eight straight months and fell below May 2020 levels in November.

After lockdown low in April 2020, it was the lowest since 2012 during Housing Crisis 1. But this time the decline was much faster than during Housing Crisis 1.

A surge in cancellations, strongest in the Southwest.

And many of those people who actually come to look at the house and then sign the sales contract, think en masse, followed by buyer’s remorse, followed by the termination of these contracts – and these surges in the number of terminations are not included in the Census Bureau data above. of the population on new home sales who simply keep track of signed contracts.

According to a survey of home builders conducted by John Burns Real Estate Advisory — with a sample size of roughly 20% of all new home sales — the cancellation rate soared to 25.6% in October, up from 7.9% in October 2021 and from 10.9% in October 2019. More than a quarter of signed contracts were even canceled! Chart via Rick Palacios Jr.director of research at John Burns (click to enlarge):

Cancellation rates vary significantly by region, with cancellation rates jumping to 45% in the Southwest. Almost half of all signed contracts are then canceled! This is up from a cancellation rate of 9% a year ago. In Texas, the bounce rate jumped to 39% from 12% a year ago.

Such a huge surge in terminations renders sales contract signing data almost irrelevant, as the contract terminated is no longer an actual sale (chart by Rick Palacios Jr., John Burns, click to enlarge):

From shortage to surplus: stocks continue to grow.

Inventories for sale at all stages of construction jumped to 470,000 homes, up 21% from last October, the highest level since March 2008. Compared to the early stages of Housing Slump 1, this was the highest level since September 2005. :

Offer of unsold new homes has been in the 8-10 month range since April due to a combination of low sales and a sharp increase in inventories. Supply in October was 8.9 months, housing recession level 1.

But the supply is calculated as the number of months it would take to sell current inventory at current sales levels, but current sales levels are based on contracts being signed and those contracts are being canceled at a record rate, and the fact that sales continue to tumble is fueling relentless inventory growth. .

Another thing is inflation. Just when you thought…

Single-family home construction spending — excluding land and other non-construction spending — seemed to peak in June before slowing or stalling, and year-on-year growth was sustained. from a historical record of 18.3% in June to 16.7% in August. But then it began to grow again and in October reached a new historical record of 18.4%. This inflation will continue to surprise you when you least expect it.

Printable, PDF and Email