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December new home sales data was just released and missed expectations falling 7.3 per cent month-over-month.The most concerning detail about the report however was inventory at the end of December.
“The seasonally adjusted estimate of new houses for sale at the end of December was 151,000. This represents a supply of 4.9 months at the current sales rate,” according to the latest report from the U.S. Census Bureau.
Basically, that means that the length of time it would take to sell the existing supply of homes climbed to 4.9 months. This is up from November, and down from a year ago.
Millan Mulraine at TD Securities:
“The drop in sales bring the months’ supply of sales to 4.9 months – its highest level since April. And with the supply of new homes on the market increasing for the fourth consecutive months in December, the level of inventory now stands at a one-year high of 151K units.
While this is still close to multi-decades low, it must be seen in the context of demand, which is yet to move much beyond current cycle lows.
The worry, though, is that with the pace of new residential building activity now approaching 1 million units, the impending surge in new homes supply could create a problem for this segment of the housing market, unless there is a commensurate increase in demand.
For now, prices continue to head high, with both mean and median home prices higher in December. On an annual basis, the median price is up 13.9% y/y, while average prices are up at a robust 15.6% y/y pace.”
What’s more, analysts warn that inventory tends to decline at the end of the year, only to pick up again in the first quarter.
Home prices have been on the mend because of a decline in inventory. But a build up of new or distressed inventory could again impact prices. We will be following this story as it develops.