New home inventory continues to rebound in North Texas. The supply of available new construction inventory experienced a sharp decline coming out of the pandemic. It rebounded sharply this year with the demand crush from the Federal Reserve and a doubling of mortgage rates.

The Census Bureau reported new home sales for November at a seasonally adjusted annual rate of 640,000 units. Sales for the previous months were revised down sharply. New home inventory posted at 8.6 months of supply according to Census. The Census sales numbers will continue to be noisy and overstated as the housing market corrects. It’s important to remember the Census is not really estimated actual sales. They are estimating signed contracts!

The problem is that we know cancellations are hitting all the major builders in a big way with mortgage rates at 6 percent or higher. The latest figures for Texas home builders still put cancellation rates somewhere around the thirty percent range. By default that means the Census home “sales” figures are wildly overstated in the current housing market reset. If a contract doesn’t make it to closing, it’s not an actual sale!

The latest weekly survey from the Mortgage Bankers Association shows the unadjusted purchase application index down 36 percent year-over year. The National Association of Realtors reported that existing home sales for November were down 35.4 percent from last year. It doesn’t take a rocket scientist to see that Census is missing the real picture right now in terms of actual new construction sales. Take those headline estimates with a huge grain of salt. You can expect a lot of Census revisions as this correction plays out.

The best equivalent to Census new home “sales” would be pending contracts for new construction. Here in North Texas we know that activity has cooled with spiraling costs and a doubling of mortgage rates from last year. Since many of the new home sales were off the books (not listed in the MLS) last year, our best gauge of actual demand here in North Texas is still resale homes.

Pending contracts for resale homes were down 37 percent in the DFW area in November. Resale homes still comprise roughly three quarters of overall sales volume right now. If demand for the bulk of the market is down 37 percent in the Dallas-Fort Worth area, that tells you new home sales were much lower that the Census figures are capturing.

Housing pundits and builders will do everything they can to talk up the market and keep prices from coming down. That’s the nature of the business. Real estate is a sell-side industry. Every day is a great day to buy a home for many agents. Title insurance companies will join the spin parade too since their profits also depend on flow.

Reality suggests that new home prices are poised to go lower in the first quarter of 2023. New construction inventory has rebounded sharply. The number of completed new homes for sale has doubled from the lows earlier this year. Finished inventory will continue to grow as builders work through that big backlog. If you are in the market to buy a new home in North Texas, there’s no need to rush. Builders are getting motivated, but there will likely be more (and perhaps better) opportunities ahead.

To get back to median new home prices in January 2021 current prices in DFW would need to drop another $106,000 from current levels. That’s when local prices really took off here in the Dallas-Fort Worth area as pandemic related stimulus and demand ignited the new home market. Median new home prices skyrocketed for 18 months to the June 2022 peak of $444,610. The 3.3 percent drop in new home prices we have experienced from the peak this year is just the beginning of the correction. There is still plenty of room for new home prices to come down.

Mind the Gap!