Brad Case, Chief Economist at Middleburg Communities, joins Bloomberg Surveillance joins to talk about pressures on a frozen housing market, whether the Fed is behind the curve, and the risks of reigniting inflation.
New-home supply in the US South — 60% of all new-home sales — has nearly doubled since the pandemic and is now 7% higher than the 2006 peak. Rising inventories aren’t isolated to that region, however, as totals are hovering near the highest since 2007. Coupled with the threat from growing resale supply, that may pressure homebuilders’ net pricing, trimming profit and leading to more cautious production.
Total US for-sale inventory is increasing rapidly — up 17% from last year — though still 10% below 2019 levels. That said, national inventory figures are masking even more significant increases in some major housing markets, including Florida and Texas, where all public homebuilders have meaningful exposure. This will likely result in public builders taking a more conservative approach to production while maintaining an aggressive stance on moving standing inventory, pressuring net pricing (base prices and incentives) and crimping margins.
The number of new single-family homes for sale climbed 8% in May to 507,000 units, representing the highest level since late 2007. This reflects greater production over the past several years as homebuilders attempted to fill the void left by a lack of for-sale inventory of existing homes. The new-home market is 25% of total inventory and was as high as 32% in early 2022.
With competition increasing for builders and existing-home sellers amid subdued demand, incentives are likely to stay elevated while cuts in base price become more common. Increased caution among builders could also lead to a further pullback in housing starts, a scenario supported by the recent declines in single-family building permits.
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