New home buyers in the DFW housing market are getting squeezed. Despite the continued trend of lower overall new home prices, the price buyers are paying on a square foot basis continues to shoot higher. This is particularly the case if you look at the median new home buyer in the Dallas-Fort Worth market. The median price of a new home in the DFW area fell by 3.2 percent in April while the average price of a new home was 4.4 percent lower compared to April 2019. Even with record low mortgage interest rates, Dallas-Fort Worth new home buyers were opting for less expensive new homes to keep their monthly payments manageable.

This trend was in place before the Covid-19 pandemic hit the market. With skyrocketing unemployment things haven’t changed much. While new home sales and prices could have tumbled in April, new construction sales have fared pretty well with the massive stimulus thrown at the markets and a limited supply of existing resale properties available for buyers. With decent underlying demand for homes in general, builders have been able to capitalize by selling smaller homes at record high prices on a per square foot basis. The median price of a new home in the DFW area hit a record high of $140 per square foot in April.

The Census Bureau reported seasonally adjusted new home sales of 623,000 units for April. This was better than many economists were expecting, but the previous three months of sales were revised lower. According to the Census Bureau both median and average new home prices were sharply lower in April compared to the same time a year ago. A lot of the action for new home sales was in the sub-$300,000 price range, thus the big drop in prices seen in April. The declines in unadjusted sales numbers are about what you would expect. As a reminder, the Census data is very noisy, and prone to large monthly revisions. I wouldn’t be surprised if the April numbers are revised lower.

New Home Sales YoY April 2020

Skyrocketing unemployment has taken the wind out of new home sales, but things could be a lot worse if you consider over 38 million Americans have filed for unemployment during the past 9 weeks. Lower overall new home prices and record low mortgage interest rates have cushioned the blow.

New Home Sales vs Mortgage Rates April 2020

What the Census numbers don’t show is the actual size of new homes being sold. Looking at local data we can see new home sizes are actually shrinking. If you are wondering how the price per square foot of DFW new homes could be rising even as the overall prices are shrinking, it helps to understand the housing market in the context of Federal Reserve asset inflation. The Fed wants to keep asset prices (especially stocks and real estate) levitated even if that means destroying real economic price discovery in the process. It’s a housing market only a central banker could love, one where you get less actual real estate for your money. With the trajectory of the Fed’s balance sheet, we’re on our way to becoming a tiny house nation.

Federal Reserve Total Assets May 20 2020