New home sales in December totaled 616k, about as expected but November was revised down by 38k to 602k. Months’ supply was 9 vs 9.2 in November and 9.4 in October. Some of this supply though is not fully finished homes. The y/o/y home price gain was up 7.8% but bounces around a lot because of mix. We know builders have been less inclined to lower home prices so as not to upset other contracted buyers and are leaning more on rate buy downs.
Bottom line, smoothing out the figures and we see the slowdown for obvious reasons. The 3 month average is 605k vs the 6 month average of 593k, the 2022 average of 642k and the 2021 average of 769k. In 2019 it averaged 683k. It of course would be nice if mortgage rates have seen their peaks but I’m not close to being convinced for many reasons previously stated. I can make the argument for the 10 yr yield to go to 3% on a US recession and rolling over inflation and I have many catalysts that would result in a 4.5-5% 10 yr yield for not good reasons.
Either way, as long as mortgage rates stay above 6%, we are just going to naturally have a smaller pool of potential buyers UNLESS we see a sharp drop in home prices to offset that elevated mortgage rate. AGAIN, low savings rates over many years has made the US consumer and business much more reliant on borrowing and thus the economic cycle has been replaced by the credit cycle and something many still don’t get when debating the state and prospects of the US economy right now IF interest rates stay higher for longer.
New Home Sales