Realtor.com’s Danielle Hale talks new home sales

Elissa Branch: Hello, Housing Wire Daily listeners. I’m Elissa Branch. And today, I’m joined with Realtor.com‘s chief economist, Danielle Hale. It’s good to have you on the show today, Danielle.

Danielle Hale: Thanks, Elissa. It’s great to talk to you.

Elissa Branch: Yeah, of course. So, let’s jump right in. Today’s episode is going to be about the latest new home sales report, which was released by the U.S. Census Bureau and the U.S Department of Housing and Urban Development. This report details home sales data for June. And before we get into, like, the nitty-gritty of the report, Danielle, I would kinda like to take a minute to talk about you just so that our listeners can understand your industry background a little bit better. So, can you talk a little bit more about yourself and the work that you and your team do at Realtor.com?

Danielle Hale: Yes. Thank you. Thanks for the opportunity to introduce myself and to be here today. As you said, I’m Danielle Hale. I’m the chief economist for Realtor.com. It’s a position I’ve held for four years now. And before coming to Realtor.com, I spent nearly a decade as an economist and policy researcher at the National Association of Realtors. So, I worked with Lawrence Yun and the team there. So, I’ve been studying the housing market for quite some time. You might say I’m a real estate lifer at this point in time.

At Realtor.com, I lead my team to track what’s going on using our proprietary data along with other leading data sources. And we aim to make our insights accessible to buyers, to home sellers, to the professionals that they rely on to help them make, what’s for many, the biggest transaction of their lives.

In a previous role, before I got into real estate research, I did some research on the Federal Reserve, and I have to say, housing is a much more engaging topic to talk to people. And I do. That’s one of the things that I really love about this role. When I tell people that I work in the housing industry or that I do housing economic research, there’s almost always a question, whereas telling people that I did research on the Federal Reserve was usually a conversation killer.

So, it was a very useful background before getting into housing. But I do really enjoy working with housing. And being at Realtor.com is a great place to be to study the housing market because we have just a wealth of information, not only the listings data that is traditionally available from real estate associations, but also data on who’s shopping for homes and the combination of the listings data with trends on who’s shopping is really powerful and can lead to some really interesting insights. So, I love the role, I love housing, and I’m really happy to be here to talk to you about it.

Elissa Branch: Yeah. Sounds great. I mean, you really sound like the perfect person to talk about this report. You seem very knowledgeable and it’s great to have you on.

Danielle Hale: Thank you.

Elissa Branch: Yeah. So, let’s get into the report itself. And for some background, the report looks at national and regional data on the number of new single-family houses sold and houses for sale. It also has some national data on median and average prices. And knowing all this and, you know, having analyzed the report, what key points do you think are most telling about the current state of the housing market?

Danielle Hale: So, I think in order to answer that question about what’s going on currently, I do want to frame a little bit the broader market context. We’ve had roughly a decade now of underbuilding. We just weren’t adding enough new homes to keep up with the number of households. And so, for this reason, even before the pandemic, home prices were rising, inventories or the number of homes that were for sale were declining. We’re generally in a seller’s market where it’s a pretty good time to be a seller and not necessarily a great time to be a buyer because things are kind of competitive and tough.

Early on in the pandemic, people thought these trends might reverse. And there was, in fact, a brief pause in buyer demand in the very early months of the pandemic, because there was so much uncertainty, and because the economy was obviously heading into recession and people remembered the last recession was not very good for housing. But ultimately, what we saw throughout the pandemic is that people were spending so much time at home that as things began to open up a little bit, finding a home was very top of mind for many people.

So, after taking a bit of a dip last spring, the housing market really roared back to life. For new home sales, this happened early because new home sales are based on contract signings. So, the very first stage in a deal getting done, it’s not necessarily when the keys are exchanged and people move in at closing.

So, contract signings, early signed, they had a big dip in the March, April timeframe, but took a big bounce up in May. And then by June of last year, the new home sales levels were at basically the best of more than a decade. Fast forward to this spring and summer, we’re seeing some of that momentum where the housing market, thank God, it’s grooved back, start to wane. And June new home sales pace of 676,000 is another sign of that. It’s a bit slower than we saw in May. It’s pretty notably slower than what we saw this time last year, but I would argue that it’s actually still a relatively healthy level when you take that broader context into perspective.

Elissa Branch: Now I kind of want to touch on June’s sales volume. According to the report, new home sales fell 6.6% month over month to a seasonally adjusted rate of 676,000. As this is the third consecutive month of declines, can you tell us a little bit about what is contributing to the decline and what June’s numbers mean for the overall health of the market right now and going forward?

Danielle Hale: Yeah, I think that’s a great question. So, yes, a third month in a row of declines, down 6.6% in June. I think a lot of people can kind of read those headline numbers and think, “Oh, that doesn’t sound like things are in a great place,” but I would actually argue the market is relatively healthy. It’s just coming down from this frenzy level that we had in the initial pandemic recovery phase that lasted perhaps a bit longer than people expected, because the disruption was so large, and because we had a lot of readjustment to life in light of the pandemic.

So, a lot of people who might’ve bought a new home in the spring of 2020 put searches on hold, and then picked them back up later in 2020. And then you had an increase in demand from everyone being at home and mortgage rates being low. And for new home sales in particular, I think you saw builders were really trying to meet buyer demand because inventory of existing homes was particularly low. A lot of people were concerned about the health risks and so held off on putting their homes up for sale last year.

As you mentioned, so June’s number is down 6.6% over the month. But taking a step back and putting it in context, it’s only about 1% below what we saw for new home sales in total in 2019. And I should add, the monthly figure we’re talking about, it’s a monthly figure that’s given in an annual pace format. So, if the pace of sales that we saw in June continues for the whole year, you would expect to see 676,000 new homes sold for the year. It’s about 1% below the figure we saw in 2019, and 2019 was a good year for home sales. It was the best in more than a decade.

So, I think the market is still in a pretty good pace, but we’re comparing with these extraordinary pandemic highs. I mean, 2020 was by far the best year that we’ve seen in a decade. And I think we’re going to see the market get back to a healthy level, which is probably somewhere between what we saw in 2019 and what we saw in that initial housing frenzy after things began to open back up , which was reflected in the 2020 numbers.

Elissa Branch: Yeah. I like how you touched on, you know, these numbers, the decline, three months consecutive decline looks kind of scary, but, like, when you look at the graph that they posted on the report, it’s still significantly above the numbers it was pre-pandemic. So, it’s not like we’re declining from, you know, 2019 levels, we’re declining from, like, the super high, like, unprecedented 2020 levels. So, yeah.

And then the report also highlights national increases in home prices. In June, the median sales price of a new home was $301,800, and the average sales price was $428,700. Although this is a little bit lower than May prices, it’s still about 6% higher than last year’s average price. You know, considering these numbers, what is attributing to the annual increase and why are we now seeing numbers slide month to month?

Danielle Hale: Great question. So, it’s not terribly unusual to see some seasonal variation in prices or some declines month-to-month due to differences in where homes are selling or the types of homes that are selling especially seasonally. And we know that as the market picked up last year, last June, we saw big increases because the pickup was so sudden and relatively unexpected. So, I think that’s some of the factor in the numbers that we’re comparing as well. But the 6% year-over-year increase that you keyed on, I would say is probably the more important and more telling figure.

Builders are facing higher costs. And although supplies have kind of ticked up, so there are a few more homes available for sale relative to how many are selling in the new home side of things, here’s still relatively more buyers than new homes to be sold. And so, that tends to keep pressure on prices to move higher. So, it’s that combination of the balance of supply and demand and the cost that builders are facing, which, like so many other goods and services in the economy right now, as things open back up, you know, those costs are rising as supply chains get back up and moving and people kind of adjust to this new post-pandemic normal.

Elissa Branch: Now that we’ve looked at both volume and price, I want to kind of put that into context of annual growth over the past year. And you kind of touched on this earlier, but according to HUD, there was almost a 20% drop in new home sales in June of 2021 compared to June, 2020. This was from 839,000 to 676,000. This can be largely attributed to inventory, which, you know, is impacting home prices. And although prices have been declining, you know, new homes are still very expensive. Considering all of this, do you think that sales volume will continue to slow and eventually get back to pre-COVID levels?

Danielle Hale: I think that’s a great question. So, yeah, we are definitely seeing the slowing in the housing market. Is it going to slow all the way back to pre-COVID levels? Perhaps for a month or two, but I don’t think that’s where it’s going to settle in long term. Heading into the pandemic, we had roughly a decade of new home sales increasing. Despite the fact that we’ve seen a decade of new home sales increasing, we’re still not back to what I would consider, and what most analysts kind of consider, like, a normal healthy level of new home sales. So, I think there’s still room for these sales figures to increase.

And part of, I think, what makes that drop from June of last year to June of this year so shocking is because of the context that we’re seeing. So, June of last year, the new home sales market in particular was really rebounding. And so, that 839,000 figure was remarkably high. Obviously, we saw new home sales rocket even past that heading into the fall. But that was a pretty impressive number. You know, this June’s number would be a healthy number were it not for that context of last year where we saw new home sales really skyrocket.

So, I think we’re at a good place. You know, I think the sales volume is probably about where it’s going to slow down into, and I expect us to get back on an increasing track. So, that will continue that pre-COVID uptrend that we were on before the pandemic.

Elissa Branch: I want to continue discussing inventory a little bit, which you, I’m sure, know, and our listeners know as well, has been a hot topic over the past couple of months. And a recent Housing Wire article titled, “New home sales dip for the third consecutive month,” you’re quoted talking about the relationship between inventory levels and home prices. As we’re still seeing some high material and labor costs, which, you know, hinder in the home building market, do you think that better priced existing homes are going to dominate sales?

Danielle Hale: That’s a great question. So, existing homes do tend to make up about 85% to 90% of all home sales. There are just so many more of them in place. But we’ve seen new home sales make up as few as like 7% of home sales, which we saw in the aftermath of the last housing boom. Builders really pulled back in a big way as the market kind of worked through this very large inventory of homes that were available for sale. And a lot of them were existing sellers. Leading into that boom, we saw new home sales as much as, you know, as high as 15% of total sales.

So, I’d say given what I’ve seen of that history, and so, after hitting that 7% low, we’ve seen the share of new home sales very gradually tick up over the past decade essentially. And going into the pandemic, it had gotten to, you know, the highest level that we’d seen, but still it was not an extraordinarily high share. Like, we hadn’t gotten all the way back up to that 15% range. We were basically in the 10% to 12% -ish range heading back before the pandemic.

I would say that given the underbuilding that we’ve seen, the share of new home sales is probably right and comfortable for the market right now is about 12% to 13%. So, that would mean we’d want to see new home sales pick up closer to where they were, say, early in the pandemic recovery, or in the, like, April to May timeframe. They were in the 11% to 12% range. In June, they were a little bit under, so I think there’s some room for new home sales to grow, particularly considering we’ve got lots of underbuilding. And I think that means we’re going to see both new home sales and existing home sales kind of get back on a steady growth pace, you know, after this adjustment back to more normal post-COVID trend.

I like to think of what happened in the immediate aftermath of the pandemic, you had this very sudden, almost shut down. It was not a complete shutdown because, you know, we never saw home sales stop. They were still carrying on, but there was a big drop off in home sales. And then you had this resumption of activity. It was a bit of a make-up period where people who were shut out in the spring were trying to realize their home purchase goals and home selling goals and make up for lost time. And so, we had this, you know, extraordinarily busy fall of 2020 and winter of 2021.

And now we’re kind of getting back to a normal market, that’s, I think, going to be somewhere in between those two extremes, and a slight improvement over what we saw going into the pandemic, because we have a lot of really positive fundamentals for housing. Heading into 2020, before the pandemic, you have a large number of young people that are at ages where they’re typically forming households and settling down, you had mortgage rates that are pretty favorable.

You do have this inventory problem that creates, you know, a rising price environment and some challenges for buyers. At the same time, I think that definitely creates opportunities for builders. And builders were getting better about rising to the occasion and figuring out how to meet those opportunities. And there’s a lot going for the housing market going into 2020. And after we worked through this disruption, I think those fundamentals are going to take over and the housing market is going to get back to a pretty healthy place.

Elissa Branch: Yeah. Well, thank you so much. You shared some really great insight about the report. But before we go, is there anything else you would like to share with our listeners about you, new home sales or just, like, the market in general?

Danielle Hale: Yeah. Thanks for the opportunity to be here. And thanks for having me. I think this is, you know, just scratching the surface of what’s going on in the housing market. I love talking about it, as you can tell, I will ramble on forever about things, but we have a website where we put this information out there. So, for people who want to follow along regularly, we are trying to keep everyone informed. And I know you check it out, but anyone who would like to check out our research can find it at realtor.com/research or follow us on social media. We have a Twitter handle that we post to regularly. So, if you want up to the minute insights on what we’re seeing in the housing market, you can find us @rdc_economics.

Elissa Branch: Danielle, thank you again so much for joining us here at Housing Wire Daily. Be sure to check them out for some really great market research and news. And it was a pleasure speaking to you. Again, I just want to say I really appreciate you coming onto the show and talking to me.

Danielle Hale: My pleasure.