Double digit price declines in new homes... while supply is the lowest in 42 years

I have been calling for a 20% price decline since July, (See Corrrelation of Mortgage Rates with Housing Prices).  Now we are seeing a 13.9% price decline in new homes.   Existing homes price decline is less severe but still falling.  Both point to what I have been saying for a long time.  Housing price declines are not behind us.  Indeed, there is much more pain to be felt once interest rates start rising. 

The large price declines headlines a very weak new home sales report. The median price of a new home plunged 13.9% in October to $195K for the lowest level in seven years. The average price fell 8% to $248K. Yesterday's existing home sales report also showed price weakness yet much less severe weakness.

The plunge in prices couldn't hold up sales of new homes which fell 8.1% to a much lower-than-expected annual unit rate of 283K, nearly reversing the prior month's 12% rebound. The breakdown shows major declines in the West, Midwest, and Northeast that far outweigh a solid gain in the South.

The drop in sales inflated supply to 8.6 months from 7.9 months. Supply is heavy not because of the number of new homes on the market, which at 202K is the lowest in 42 years, but because there are so few buyers. The prospect of foreclosures points to further pressure on supply. What a day for economic news, up and down but this report is definitely troubling especially if you're a homebuilder or a construction worker.


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