New Home Prices Drop 18% 🤯

Author

Nick Steinhauer
December 04, 2023

Good Morning! We’ve made it to December. As the year is winding down, interest rates are actually starting to pull back in a meaningful way, which may make for a very interesting 2024 🙌🙌

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Read time: ~4 minutes

Rates ended DOWN compared to last week, and volatility was LOW. With a relatively calm week, rates remained in the mid to low-7 range for most loan types without paying discount points. Paying discount points can get you in mid to high 6’s depending on loan type and credit.

Higher Loan Limits Announced

With inflation and home prices increasing through most of 2023, the loan limits on conforming loans (Conventional, FHA, VA) are all getting a bump in 2024.

  • Conventional - In most counties, the loan limit on a one-unit property will be increasing to $766,550. High-cost areas have bumped the loan limits, too.

  • FHA - Loan limits are specific to each Metropolitan Statistical Area (MSA). In central Ohio, the loan limit on a one-unit property will be $546,250. The loan limit in more rural parts of Ohio will be $498,257.

  • VA - There are no VA loan limits if a veteran has full eligibility. Bonus entitlement, however, will be affected by the bump in Conventional loan limits. When a veteran wants to leverage their VA benefits to buy a new primary residence but retain their existing home for investment purposes, they can use this bonus entitlement.

As a note, USDA does not have loan limits and instead have income limits.

2-4 unit properties also received loan limit bumps for Conventional and FHA.

Most lenders will follow the new loan limits on new locks. Keep in mind, FHA and VA bonus entitlement will NOT go into effect until January 1st, 2024.

Key Takeaway : These adjustments allow more buyers to leverage stronger conforming loans. Relative to jumbo loans, conforming loans allow a significantly lower down payment (only 3 - 3.5% down), better interest rates and more relaxed underwriting guidelines. Additionally, conforming loans are tremendous options for buyers will less than perfect credit.

New Home Prices DOWN 18%

Last week, X (previously Twitter) was in a tizzy over a post from Nick Gerli at Reventure showing an 18% decline in new home prices in the last year (Q3 2022 to Q3 2023). Last year, the typical new home cost about $496,800 and is now down to $409,300. Since the pandemic, new home prices have lost about half their increase.

The REALLY interesting note is that new home prices are currently inflated due to a lot of the bigger, national builders offering huge incentives to buy down a buyer’s interest rate to get through inventory. We’ve been told these incentives cost 5-6% of the purchase price, which are passed to the consumer through the price of the home. Price are artificially higher meaning the data could be far worse without those incentives.

There was a lot of speculation on why new home prices have dropped. Many suggest the decrease is due to smaller homes being built. While that is true that builders are constructing smaller homes, its not as significant as you would expect. We only see about a 4% reduction in square feet over the last year (2,309 down to 2,218).

What is causing such a drop in new home prices? It could simply mean builders are struggling to move through inventory and finally need to start cutting price. Builders are having a great year relative to the rest of the housing market but that might be due to significant reductions in prices and more attractive rates.

Key Takeaway: New builds might be a good indicator of what might bring the existing home market out of the doldrums. Maybe we need to see an 18-20% pull back in prices and interest rates in the 5-6% range to drag buyers and sellers back into the existing home space.

Instagram Posts from Last Week

Don’t hesitate to reach out if you need anything at all. Have a wonderful week!