Robert Dietz of the National Association of Home Builders (NAHB) reports on new home sales, which slowed by 12.2% in November due to high interest rates. Given rates have been falling, it is expected that sales will rise in the coming year. New homes are making up a more significant percentage of overall sales due to the lack of resale inventory. 

Source: NAHB (December 2023)

Diana Olick of CNBC reports on overall sales, which remained flat in November. Pending home sales in the month were unchanged from October but remained 5.2% lower annually. Regionally, sales in the West made the most substantial gain of 4.2% in November.

Danielle Hale of Realtor.com reports on sales data, highlighting a pickup in new listing activity due to the drop in rates, which is expected to stabilize pending sales activity into early 2024.

Source: Realtor.com (December 2023)

“Pending home sales or contract signings measure the earliest formal step in the home sale transaction, namely, the point when a buyer and seller have agreed on the price and terms. Pending home sales tend to lead existing home sales by roughly one-to-two months. Today’s data signal that home sales activity could register better than expected.”

According to new data from Redfin, homebuying demand is making a slow comeback. Dana Anderson reports, “[d]eclining mortgage rates and a double-digit increase in new listings are bringing house hunters off the sidelines, with pending sales posting their smallest decline in about 20 months.”

Modular construction

As affordability challenges persist in the housing market, many are turning to modular construction methods to build faster and cheaper. According to Joe D’Allegro of CNBC modular construction averages $80 to $160 a square foot, about 10-20% cheaper than traditional construction. 

That puts the average modular home cost at $120,000 to $270,000 versus $155,000 to $416,000 for traditional construction. Therefore the down payment would be much cheaper and more affordable for would-be homeowners currently priced out of the market.

“Mortgage expenses for a 30-year fixed mortgage at 7.25% interest would be $13,500 and $1749.78/monthly for a high-end modular home, versus $20,800 and $2,695.96/monthly for a traditional top-end $416,000 home.”

Binyamin Appelbaum of the New York Times comments on modular construction, asking why we are still building the same way we did 125 years ago and not evolving. Only 2% of homes are currently built in factories, which would offer significant construction savings if it became more widespread. 

Despite this, more prominent homebuilders and investors are taking notice of the promise of modular. For instance, The Real Deal reported last week that Lennar acquired struggling modular builder Veev, which was once valued at over $1 billion. Veev claims it can build homes up to four times faster than a traditional builder.

“Veev was part of a wave of affordable housing startups that gained enthusiasm during the boom years, envisioning mass production of new homes through prefabricated components and standardized building processes.”

Mortgages update

The Freddie Mac 30-year fixed rate continued downward last week, hitting 6.61%, according to Realtor.com. This comes amidst lower bond rates, and the Fed is now signaling rate cuts in 2024 as more and more likely. 

Source: Realtor.com (January 2024)

According to Reuters, this is the lowest rate we’ve seen since May due to the Fed signaling rate cuts, which has sent bond yields below 4% from 5% in late October. This has pulled down fixed rates ahead of any Fed cut in 2024.

As such, the Mortgage Bankers Association (MBA) reports that homebuyer affordability improved in November, with the median payment in purchase applications dropping from $2,199 to $2,137. According to Edward Seiler, MBA’s Associate Vice President, Housing Economics:

“Homebuyer affordability improved in November, with a decline in mortgage rates providing relief to prospective homebuyers…MBA expects that affordability conditions will continue to improve as mortgage rates decline, which should generate increased demand heading into the spring homebuying season.”

According to the Journal Review, homebuilders are increasing the building pace due to lowering rates. “Builders broke ground on single-family homes in November at a seasonally adjusted annual rate of about 1.14 million units…That’s an 18% jump from October and a 42.2% increase from November last year. It also marks the fastest pace for single-family housing starts since April 2022.”