New home sales continued at a solid pace in March as the Fed poured more stimulus into the markets. The Census Bureau reported new home sales for March at a seasonally adjusted annual rate of 1,021,000. According to Census figures the median price of a new home rose to $330,800. The average price of a new home hit $397,800. The supply of new homes fell to 3.6 months. Stripping out the adjustments, the inventory situation is much worse than that. Inventory under construction is near normal levels, but completed inventory is at record lows.
Massive stimulus from the Federal Reserve ($120 billion per month in asset purchases) has continued to prop up the new home market. Low mortgages rates, record low existing home supply, and a surging stock market have provided a unique opportunity for builders. While many are complaining about the high price of materials, it is obvious that builders have been able to pass off any price increases to consumers. It’s the TINA effect. With no existing homes to purchase, buyers have been willing to pay through the nose for what is available.
The accompanying charts provide some context in terms of the strong headline sales numbers. The truth of the matter is we won’t really know much about the strength of the housing market until the Fed takes the markets off of life support. When the $120 billion per month of QE comes to an end, only then can we talk about economic growth and actual demand. As I mentioned in a previous post, what we currently have is a Covid freak show courtesy of the Fed.
The supply of new homes in North Texas is just over one month. Denton County has less than a month of supply of new construction. After several years of moderating new home prices, we just witnessed a sharp rise in new home prices. That’s the power of central bank liquidity in action. Average new home prices for the DFW area were up 13 percent from March 2020. Average new home prices in Denton County are up 24 percent from the same time a year ago. Good thing Jerome Powell and the Fed have our backs keeping that 2 percent inflation mandate in place.
The price per square foot of a new Denton County home just shot up 16 percent, but the con artists at the Federal Reserve are telling you that all this inflation is transitory noise.
Fun times.
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