Unexpectedly Intriguing!
September 10, 2014

Evidence continues to mount that all is not well for the new home sales market in the United States. Now that we're armed with the most recent data available for median new home sale prices and median household income through the month of July 2014, let's update the picture of where things stand for the consumers of new homes being built throughout the United States:

U.S. Median New Home Sale Prices vs Median Household Income, December 2000 through July 2014

We observe a scenario in today's new housing market that very much echoes the early phases of the topping out of the first U.S. housing bubble after September 2005. Here, after a very robust period of growth during the major inflation phase of the first bubble, where the median sale prices of new homes in the U.S. were rising on average by $21 for every $1 increase in median household income, the rate at which new home sale prices were escalating began to slow significantly before flattening out through November 2007, then crashing as the U.S. economy began to contract in a major recession.

Today, we see that the major inflation phase for the second U.S. housing bubble ran from July 2012 through July 2013, as median new home sale prices rose by $25 for every $1 that median household income increased during that period. Since then, that pace of growth would appear to be decelerating and, since January 2014, to increasingly be flattening out.

We're also increasingly seeing the situation where new home builders are boosting the incentives offered to new home buyers without boosting prices, which once again reflects what happened during the topping out or stagnation phase of the first U.S. housing bubble. Calculated Risk presents Tom Lawler's notes from new home builder D.R. Horton's (NYSE: DHI) July conference call with investors:

In the company’s conference call Horton’s CEO characterized the overall demand for new homes last quarter as “relatively stable” compared to a year ago, but that Horton’s previous aggressive acquisition of land/lots, combined with more aggressive use of sales incentives to move inventory, enabled the company to boost its market share to its highest level ever. Another official said that the company increased sales incentives in MANY of its communities in order to meet its aggressive sales goals. The official noted that sales incentives were much lower than normal in 2013 and early 2014, but that last quarter (and currently) sales incentives were “back to normal.” Another official noted that home price appreciation had slowed appreciably.

That trend continued into August, particularly in areas that had previously been booming during the inflation phase of the second U.S. housing bubble, such as Phoenix, Arizona:

New-home prices across metro Phoenix soared too high and too fast in 2012 and 2013 for many buyers to handle, leading to a slump in sales that has builders worried.

Higher prices for new houses, along with slower-than-expected increases in household income, population and job growth, will cut the number of home sales an estimated 5 percent from last year's level, stalling the long-awaited recovery of the region's homebuilding market.

The slowdown in home sales means fewer construction jobs but better deals for new-home buyers. Home prices have dropped slightly this summer, and builders are trying to lure buyers by offering incentives that include lower mortgage rates and free upgrades on appliances, countertops, lighting and flooring.

That opens up a question of how new home builders are doing, which we'll tackle in the very near future.


Sentier Research. Household Income Trends: July 2014. [PDF Document]. Accessed 3 September 2014. [Note: We have converted all the older inflation-adjusted values presented in this source to be in terms of their original, nominal values (a.k.a. "current U.S. dollars") for use in our charts, which means that we have a true apples-to-apples basis for pairing this data with the median new home sale price data reported by the U.S. Census Bureau.]

U.S. Census Bureau. Median and Average Sales Prices of New Homes Sold in the United States. [Excel Spreadsheet]. Accessed 5 September 2014.

Previously on Political Calculations

We were among the first to declare that a second housing bubble was forming in the U.S. economy, and we were the first to back it up with an objective framework of analysis and data. Our ongoing analysis is chronicled below....


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