Home sales dropped, but is that enough to call the housing market overinflated? According to Bloomberg News, new home sales dropped by 12.2% in November.
US new-home sales in November unexpectedly dropped in November, indicating a possibly rough path to recovery for the housing market. Purchases of new single-family homes dropped significantly, falling below economists’ expectations. While the decline may be temporary, it suggests a setback in the housing market’s progress. Additionally, the median sales price of a new home decreased, and inventory levels reached a year-high.
Sales in the South, the largest US region with the lowest median salary, saw a sharp decline, as did purchases in the US west coast. While existing-home sales increased slightly, the volatile nature of new-homes data adds uncertainty to the market’s future.
Market Cheerleading
In most mainstream outlets, the outlook for housing is overwhelmingly positive, but in some corners of the industry and banking, the historical landscape is interpreted differently.
For instance, analysts at Sachs Realty have questioned the underlying health of various federally subsidised housing loans. They allege that because much of the housing market was in a moratorium for 3.5 years, insurance rates have increased and many people have precarious spending habits, the actual housing crisis is delayed.
In AIRBNB’s case, the issue that has been highlighted is the rise in second home ownership derived from speculative investors. In the case of the economic website, Zero Hedge, the concentration of credit and capital has dwindled supply artificially: “income and capital gains, to the already-wealthy rather than to the not-yet-wealthy. This policy-driven hoarding / concentration of housing in the top 10% is one factor driving rents higher due to artificial scarcity–a scarcity created by central bank and government policies, not the “market.”” As such, homes are artificially unavailable in key locations with Florida already reflecting aspects of this pattern.
The positive outlook for the new-homes market is contingent on a sufficient number of buyers entering the market. As 30-year mortgage rates drop below 7% many expect the Federal Reserve to continue cutting borrowing costs next year. However, there is optimism which in my view is misplaced. Alrthoug Builders are capitalizing on low inventories in the resale market and enticing buyers with incentives like subsidized mortgage rates and price reductions.