What's Wrong With The Housing Market In The South?

Prior to the Great Recession the general belief in the housing market was that there actually wasn't a national market per se but that the US housing market was an aggregation of many smaller regional and local markets. Even when this belief was tested during the national housing crisis as the US experienced a widespread decline in housing prices, the magnitude of the fall in prices varied greatly among different cities according to the Case-Shiller data (in general the greater that rise in prices pre-crisis, the greater the decline during the crisis). For example, prices in Dallas only fell by 11.2% from their highest price level while prices in Las Vegas declined by 61.7%. Dallas is now 8.1% above their pre-crisis highs while Las Vegas is still off by 43.8% from their pre-crisis high.



This brings us to June's new home sales report released today (and back to the housing starts report from last week) . The southern housing region is having a terrible year so far and it is dragging down the rest of the national housing statistics with it. This is because of the four identified regions (Northeast, South, Midwest, & West), the southern region is by far and away the largest housing market in the US.  Since 1973, it has on average accounted for 46% of the total new homes sales in the US. And over the past 10 years, it has account for more than half of all new home sales.



Total new home sales declined by -8.1% in June and are now down 11.5% year-over-year. In the South, new home sales have fallen from 251K annualized at the end of last year to 209K annualized in June. Overall, new homes sales are down 17.4% year-over-year in the South. As we have noted before, the weakness in new home sales is tracking mortgage applications for purchase pretty closely.





As new home sales decline, inventory is increasing as the months' supply of houses for sale is rising. At 5.8 months, it is at it's highest level since October 2011. What is somewhat surprising is we aren't seeing an increase in the median months for sale even though it seems that there is more inventory on the market. However, it looks as though it takes time for an increase in supply to hit how long it takes to sell a home and if this past relationship holds, then the amount of time it takes to sell a house could be on the rise over the next year.