Although local property developers in some regions are experiencing problems, overall global real estate sales are hitting record highs. In the US, the country that is least exposed to inflation and therefore the desire of investors to protect their funds, the situation is the same.
Sales of new US single-family homes jumped to a nine-month high in December, boosted by a severe shortage of previously owned houses on the market.
The US Commerce Department reported that new home sales, which account for more than 10% of US home sales, increased 11.9% to a seasonally adjusted annual rate of 811,000 units last month, the highest level since March 2021. November's sales pace was revised down to 725,000 units from the previously reported 744,000 units.
Sales soared in the densely populated South as well as in the Midwest. They also rose in the West, but tumbled in the Northeast.
Economists had forecast new home sales rising to a rate of 760,000 units. New home sales are a leading indicator of the housing market, but can be volatile on a monthly basis.
However, sales dropped 14.0% on a year-on-year basis in December. In January they peaked at a rate of 993,000 units, the highest since the end of 2006. About 762,000 new homes were sold in 2021, down 7.3% from 2020.
This is partly due to the fact that the most conservative part of the population, which is precisely inclined to invest in real estate, bought properties in the first pandemic year. Part of the drop in sales in December can be explained by the New Year holidays, tax payments and other seasonal reasons. An increase in January was also due to the volatility of the stock markets in recent weeks.
However, the secondary (and cheaper) housing market has become depleted and the primary housing market is not always able to offer attractive options. The supply disruptions and the price of raw materials prevent a large number of new houses from being built.
The new housing market is being underpinned by a record-low inventory of previously owned homes.
The median new house price in December rose 3.4% from a year ago to $377,700. There were 403,000 new homes on the market, up from 397,000 units in November.
Houses under construction made up 65.3% of the inventory, with homes yet to be built accounting for about 25%.
The government last week reported the housing construction backlog surged to a record high in December while completions tumbled as well. Builders are being hamstrung by sky-high prices for building materials, a situation that could worsen after the government nearly doubled duties on imported Canadian softwood lumber last November.
At December's sales pace it would take 6.0 months to clear the supply of houses on the market, down from 6.6 months in November.
However, experts expect demand for housing to remain high even if mortgage rates rise, which, together with high prices, will lead to a further decline in housing affordability. Along with the steady rise in real estate prices, all this suggests that Americans are extremely interested in investing in real estate, which has traditionally been regarded as a safe haven. And this trend is likely to continue at least until March.
Thus, development companies, especially those that went through a consolidation process this year and merged with other market players, are still a good investment. In the next six months, but not before inflation pressures subside, their shares, as well as the indices in which the developers are included, will be quoted higher in the market than they were five years ago.