The Census Bureau reported new home sales for November at a seasonally adjusted annual rate (SAAR) of 590,000 units. That was well below expectations. The median new home price was $434,700 according to Census estimates. The average new home price was $488,900. The inventory of new homes rose to 9.2 months of supply. That put inventory at the highest levels of the year, and back to where it stood in November 2022.

But there’s a catch. This is November data. The November Census estimate on new home sales doesn’t capture the capitulation from Janet (Treasury) and Jerome (the Fed), which dropped mortgage rates over 125 basis points from the recent highs. The Census estimates are based on contract signings, not closings. Those “estimates” are volatile and subject to continuous revision. If you were planning on plentiful supply and some big year-end discounting, you will need to temper your expectations.

New home prices were trending down since June of last year. The median new home price for November was 7 percent ($45,000) lower than the same time a year ago here in North Texas. As mortgage rates began their rise, builders were forced to shift the product mix toward lower (more affordable) price points. The spike to 8 percent rates was a big blow to affordability.

Collin County Texas captures the FOMO mania caused by the suppression of interest rates and $trillions in additional liquidity. This is a chart of actual closed new home prices in Collin County. Can you spell mean reversion?

Collin County TX New Home Prices November 2023

The chart for North Texas new home prices has been following the trend in U.S. new home prices this year. It was all about a shift toward affordability. Higher rates caused new home prices to drop. It also caused inventory levels to rise. While it may seem counterintuitive, higher rates are exactly what the housing market needs. Alas, it appears Janet, Jerome and the industry have other plans.

The end of 2023 is shaping up much like last year. As rates spiked there was a sharp drop in demand and a brief period of inventory discounting from builders. From November to January there were some reasonable deals to be found on new homes. Buyers swooped in and picked off much of the affordable inventory.

It looks like we’re going to see a repeat of that scenario. There were some pretty good deals on new homes going into November if you were in the market. There are still some pockets of completed inventory, but much of the affordable stock has been spoken for with the drop in rates and more typical year-end demand. Preliminary data for Collin County shows a sharp bounce in new home prices in December. Data for Denton County indicate a slight rise as well.

As we head into 2024 inventory levels will be important to watch. Builders will continue to build as long as they are making money. They are still enjoying above-average margins and profits. The big question mark is the resale market. Will resale inventory make an appearance again? The answer to that question could ultimately dictate the path of new home prices next year.

U.S. Mortgage Rates December 21 2023

In case you were wondering how home prices could have spiked so dramatically during the pandemic, wonder no more.

M2 Money Supply Oct 2023