Home Sweet Home?
New homes of half a million dollars and up were just 3% of sales in 2002 but nearly 30% in June of this year. There is an obvious trend of new homes being built at higher price points.
30 August 2021 · Issue #920 · View online
Business Insider had a story this week proclaiming the death of the starter home.
The Death of the Starter Home?
Here’s the gist of the argument:
Oxford Economics’ chief US economist, Gregory Daco, highlighted a chart created by economics blogger Bill McBride showing the distribution of new homes by price range going back to 2002.
That chart, using data from the Census bureau’s monthly report on new home sales and prices in the US released on Tuesday, shows that while over half of new homes sold in 2002 were priced at under $200,000, only about 2% fell in that range in July 2021.
Meanwhile, the share of new homes selling for over $400,000 has steadily risen, with nearly half falling in that bracket last month.
Homebuilders aren’t making new houses that sell for $200k or under anymore. Thus, the starter home is dead.
At first glance, it would be hard to argue with this conclusion. After looking under the hood, my conclusion is somewhat more mixed.I decided to dig through the numbers myself with some help from Federal Reserve data.
This is the proportion of new houses sold in the United States going back to 2002 broken out by various price points:
New home sales at $200k and under were as high as 60% of total new houses sold in 2002 at one point. In July of this year, that cohort accounted for just 2% of new home sales.
New homes of half a million dollars and up were just 3% of sales in 2002 but nearly 30% in June of this year.There is an obvious trend of new homes being built at higher price points.
There are a few explanations for this trend.
For one, there were simply more houses being built back then. Here is the same breakdown by price point but instead of the proportion of total houses sold, this one shows the absolute number of new homes built
This number is finally creeping higher but it is still well below the early 2000s boom.
What if the number of starter homes being built back then had more to do with the housing bubble than anything? What if that period was the outlier?
The higher price point for new homes is also being driven by the experience homebuilders had following the housing market crash. Builders went overboard in the housing bubble and were left holding the bag.
There are still lingering scars.
Ben Carlson
Photo credit: Gus Ruballo on Unsplash