EDITOR NOTE: Home sales fell dramatically in June signaling that the housing boom may be in retreat. With sticker shock discouraging buyers from crowding the market, it's understandable that prices may be about to deflate in the sector. A new home is obviously a big-ticket item, so those who can afford to hold off should have no pressure to do otherwise. The same can’t be said for rent or the price of basic goods and services--all of which appear to be rising, and most of which will never retreat. In short, don’t let the deflationary trend in certain segments of the economy fool you into thinking that inflation won’t be persistent. Because inflated prices, once established, tend not to go back. Historically, the price of goods and services tends to stay fixed or moving forward. And we’re still at the beginning of a very painful surge.
The housing boom that fueled an unprecedented surge in home prices during the pandemic seems to have finally tapered off. Sales of newly built homes in June fell 6.6% below the revised May rate. This represents a fall to an annualized rate of 676,000 below May’s rate of 724,000 and a whopping 19.4% below the June 2020 estimate of 839,000 according to the U.S. Census Bureau.
The median home price for a new home rose around 6% compared with the previous month’s gains as high as 15-20%. This decline could mean that the inflated home prices seen throughout the year are finally correcting.
Chief Investment Officer at the Bleakley Advisory Group Peter Boockvar told CNBC that “the moderation in home sales is likely a combination of sticker shock and the slowdown in the ability of builders to finish homes because of a variety of delays.”
Whether or not the market has been saturated with buyers will show itself in the next couple of months as we see if prices bottom out or start to rise again. The sticker shock Boockvar references could be representative of a demand that endures but is reserved until prices come back down. The difference has considerable implications for the real estate market. Should the buyer’s market be saturated, that is everyone who needed a home bought one, we could see prices fall off even more.
If demand is purposely restrained due to drained buyers who have thrown their hands up to historically inflated prices, the housing market could simply be in a lull ready to rise again once prices come off to a level of interest for a demand that still exists.
Michael Goodman of Sherwood Lumber previously told GOBankingRates that they expect demand to remain high for at least the next year and a half or so as they have many lumber companies with projects still on the books that are not complete.
Another possible factor leading to the decrease in home sales could be the uptick in mortgage rates buyers felt in June. Mortgage rates increased by about a quarter of a percentage point in June, which could have been the tipping point for buyers already weary of sky-high sticker tags.
The USCB also adds that the inventory of new homes for sale increased from a 5.5-month supply in May to a 6.3-month supply in June. This could potentially mean that if supply and prices stay on course as they currently are, and buyers still hold out, the tide could eventually turn and become a buyer’s market.
Original post from Yahoo! Finance