New home sales for September came in a little lighter than analysts expected. The Census Bureau reported new home sales for September at a seasonally adjusted annual rate (SAAR) of 959,000. This was down from August numbers which were revised lower. Despite missing expectations, September new home sales were still up 32.1 percent from last year. The summer and fall of 2020 have seen an incredible run for new home construction in the United States. It has been an incredible run considering the economic backdrop.

While the median price of a new home rose slightly last month, the average price of a new home jumped to a record $405,400 in September. That’s a rise of 8.9 percent from the average price of $372,100 in September 2019. The 3.6 months of new home inventory in September was a slight improvement from August, but still down 32 percent from last year.

New home sale prices September 2020

Without additional stimulus it seems the new home sales euphoria could be running out of steam. This should not be surprising considering all of the liquidity thrown at the markets to get us to this point. The Federal Reserve’s bloated balance sheet hit a new record high last week.

Fed Balance Sheet Oct 21 2020

The Fed is still gobbling up mortgage-backed securities to keep interest rates low.

Fed Mortgage Backed Securities October 21 2020

New home sales in the Dallas-Fort Worth area were up 14 percent from September of last year. Median new home prices in DFW were up a modest 1.5 percent. Average new home prices in DFW barely budged, rising 0.7 percent compared to September 2019. DFW builders have enjoyed a fabulous year for new home sales because they have been able to keep average prices in check. Despite the lid on overall new home prices, buyers are paying record prices per square foot.

The average price per square foot of a new DFW home rose 5.5 percent in September to a new high of $154. In Denton County new construction prices spiked 7.4 percent to a record $159/foot. North Texas is sitting on just 2.4 months of new home inventory. Denton County has just 1.8 months of new construction supply.

Buying a new home in a market distorted/inflated by the Federal Reserve’s liquidity firehose is a bit like buying a bag of potato chips at your local grocery store. The packaging looks good, but there’s some air in there. Maybe a better way to summarize the new home market in 2020 would be this…

Honey, I shrunk the dirt!