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New house price drops again in May

Published on 21 Comments on New house price drops again in May

The median price of a new house fell again last month:

The price of a new house is now below its pre-pandemic trendline and heading toward its 2020 level. It may or may not get there, depending on how the economy does, but it'll be close. When the Fed finally gets around to lowering interest rates, the real cost of buying a home will be back to normal. Gen Z take note: The housing market may seem grim now, but it won't be forever.

21 thoughts on “New house price drops again in May”

  2. Vog46

    Supply of homes is also high.
    Yet now republicans want to put the Fed Res under the control of the Administration (or Executive branch) so that Trump can drop interest rates and take credit for it.
    What a tangled web they weave

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      1. Art Eclectic

        The places we are looking on the CA Central Coast are also dropping. We track a list of interesting properties, what the originally list for, price drops and dates, final sales price. If you look at estimated value, it spikes in around 2022 and is now dropping.

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  4. Jasper_in_Boston

    This is very good news (unless you're trying to sell your house). But, I will note that to some extent this is likely being driven by the fact that new house construction statistics these days tend to be driven by several sunbelt markets (Texas, Florida, Georgia etc). So, when construction catches up and begins to surpass demand in such places, it will have the effect of making it appear that new homes nationally are more affordable than they really are.

    But sure, a positive sign nonetheless.

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    1. joey5slice

      I endorse this comment (except the use of the term "Bro"). This sentence seems to willfully misunderstand how real estate prices work:

      "When the Fed finally gets around to lowering interest rates, the real cost of buying a home will be back to normal. "

      When the Fed finally gets around to lowering interest rates, the price of assets that provide a steady stream of income long into the future will rise materially. That's true for 30-year bonds, and its true for residential real estate.

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      1. dausuul

        Kevin didn't say "the price of a home." He said "the real cost of buying a home" -- which includes interest on the mortgage.

        For anyone not paying cash, a home purchase is a three-way transaction: The buyer, the seller, and the bank. When interest rates are high, the bank gains and the buyer loses. The buyer then passes along some of that loss to the seller via lower prices.

        If interest rates come down, this process is reversed: The buyer gains and the bank loses, and some of the buyer's gain is passed on to the seller. What this looks like in practice is that the average price of a house goes up; the average mortgage payment goes down; and bank profits go down.

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    2. Art Eclectic

      Exactly. With residential real estate there is a need for the seller and buyer to agree on value. If there is no agreement, the seller can either sit on the property until a buyer shows up and agrees on the value or they can drop their price if they need a sale faster.

      With more communities banning or restricting short term rentals, it will start to impact prices (Barcelona just banned, Maui is coming, Santa Ana just banned) as properties become less attractive to investors.

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      1. emjayay

        NYC passed a law about that too, maybe a year ago. Of course the devil is in the details, meaning enforcement and getting ahead of whatever creative ways there are to cheat. There was already a lot of cheating under whatever rules were in place before.

        I'm glad to see that people are waking up to the problem. In very tight housing markets a few percent of AirBnBs and everyone else is paying for it in their rents or prices, besides all the other downsides. Apparently central Barcelona had turned into a For Tourists Only sector.

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    3. skeptonomist

      Kevin is presumably referring to annual payments or total cost, not just purchase price. Cost was very low (affordability was very good) around 2021 because of record-low mortgage rates, despite high prices. Whether mortgage rates will actually go down very much is another question. They may never go back down to 2021 level.

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      1. cmayo

        It doesn't really matter whether he's referring to annual payments or total cost or purchase price, though. If rates go down, purchase price will go up such that monthly payments remain roughly in step with whatever trend the local market has going on.

        And in a lot of cases, that's continued increases. Not as fast or as high as 2021, but still increasing.

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    1. joey5slice

      Thanks for doing the homework on this! I was curious what impact the starting point had. It looks like there was a big run up in price relative to income right before Kevin's chart started.

      Starting points always make a difference. I don't know of a good way to pick the "right" starting point. But at least this shows that different starting points matter.

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    2. Art Eclectic

      What I find interesting is that the current escalation in prices is faster and higher than the housing bubble back in 2006-2008. I would be curious what the underpinning of those price increases really is, that steep rise is too fast for the usual explanations of basic growing demand due to household formation, a zillion illegal immigrants, etc...

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      1. cmayo

        It's lack of supply, because after the financial bubble (it wasn't a housing bubble) construction of new units really cratered. If there was any kind of overbuilding happening before 2007, then between 2008 and 2020 we underbuilt by multiple times as much.

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