REZ - Price Surge Spikes New Home Market Cap As Sales Collapse
Summary
- New home sales fell, but the average price of a new home sold in the U.S. spiked much higher.
- Our revised estimate for June 2022 is $31.22 billion, a 0.8% reduction from our initial estimate, but against which, July 2022's estimated market cap represents an increase.
- New home sales were dominated by high dollar value homes being bought in July 2022.
The market capitalization of new homes in the U.S. is the product of two factors: average new home sale prices and the number of sales. Multiply these two numbers together and you have a direct measure of the relative health of the U.S. homebuilding industry.
After recent reports of plunging sales and falling prices for new homes in the U.S., we were fully braced to see the nation's new homes market cap follow suit. But once we got our hands on the latest data, we were in for a surprise. New home sales fell, but the average price of a new home sold in the U.S. spiked much higher.
Political Calculations initial estimate of the market cap for new homes in the U.S. in July 2022 is $31.40 billion, down 0.25% from our initial estimate of $31.48 billion for June 2022. Our revised estimate for June 2022 is $31.22 billion, a 0.8% reduction from our initial estimate, but against which, July 2022's estimated market cap represents an increase. The latest update of our chart shows the developing trend for the U.S.' new home market cap's shifted trailing twelve-month average, which shows the market cap of new homes in the U.S. has hit a new post-housing bubble high:
The next two charts show the underlying shifted twelve-month averages of sales and price data for the new home market cap:
New home sales continued falling:
Average sale price spiked up to $536,800:
In the latter two charts, we're also showing the raw monthly data for new home sales and their average monthly sale price. Reuters reports "new home sales tumbled 12.6% to a seasonally adjusted annual rate of 511,000 units last month, the lowest level since January 2016". The news service also reported the "median house price up 8.2% to $439,400 from year ago".
But in focusing on the median, Reuters missed what happened to the average. In July 2022, the average new home sale price was initially estimated to be $546,800. That's up by 19.6% from the previous month's revised estimate of $457,300 and is up +18.3% from a year ago. For reference, the average sale price of a new home in July 2022 is over 40% higher than their level at the bottom of the Coronavirus Pandemic Recession in April 2020.
This large difference between median and average indicates the bottom fell out of the bottom end of the new home market in July 2022 compared to the previous month. New home sales were dominated by high dollar value homes being bought in July 2022. That's why the initial estimate of the market cap for new homes in July 2022 rose to its highest level when compared with the revised data for recent months.
We think this current trend is not sustainable and the situation does not bode well for the U.S. economy in the second half of 2022. New home sales contribute anywhere from 3% to 5% of the nation's GDP, so a falling market cap for new homes will represent a headwind for the U.S. economy.
We'll look at the trend for the relative affordability of new homes in the U.S. during the first week of September 2022.
References
U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [ Excel Spreadsheet ]. Accessed 23 August 2022.
U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [ Excel Spreadsheet ]. Accessed 23 August 2022.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Price Surge Spikes New Home Market Cap As Sales Collapse