July new home sales recorded the strongest monthly pace since October 2007, growing to a 654,000 seasonally adjusted annual rate. According to estimates from the Census Bureau and Department of Housing and Urban Development, the elevated July rate marked a 12.4% gain over downwardly revised, but still strong, estimates for June.
On a year-to-date basis, new home sales have improved 12% over comparable 2015 totals.
Due to the increase in the sales pace, the inventory supply for the national market is thin. Total homes for sale fell to 233,000, only a 4.3 months’ supply, according to government estimates. Levels below a 5.5 month’ supply show a need for additional inventory, particularly given flat existing home inventory conditions have prevailed over the last four years.
Another noteworthy feature about inventory conditions is that a rising count of new home sales are coming from homes under construction or homes that have not yet begun construction. In fact, in July, only 30% of new home sales were completed, ready-to-occupy homes. And the inventory of such homes remains flat, despite rising demand. As of July, there were only 57,000 completed homes for sale nationwide.
However, in the face of increasing demand and sales, prices are moderating. This may mark a shift in the industry mix of homes, mirroring data we examined regarding the recent decline in new single-family home size. Median new home price fell to $294,600 in July, although median new home price has been approximately in the $290,000 to $310,000 range for most of 2016.
Overall, this was a positive report and consistent with ongoing, solid home builder confidence readings. We should not be surprised if the elevated sales pace estimated for July is revised down next month, but the 3-month moving average for new home sales rose to 603,000. This is consistent with a rising trend in sales in place since March.
And the thin inventory conditions point decidedly to the need for additional single-family homes on the market. This is consistent with the NAHB forecast of positive growth rates for single-family starts for the rest of the year and into 2017 and 2018.