Housing Affordability Causes Ongoing Challenges in New Home Sales in June


Contracts for new, single-family home sales increased in June by 7.0% to a 646,000 seasonally adjusted annual rate according to estimates from the joint release of HUD and the Census Bureau. The increase came off a downwardly revised May estimate, which was decreased from an initial reading of 626,000 to a new estimate of 604,000. Year-over-year, the June estimate is 4.5% higher compared to June 2018. The June estimate is another reminder that builders must manage costs as affordability concerns rise. While a solid economy and positive demographics support future demand for housing, it is critical to address the mounting affordability crisis despite lower mortgage rates.

In spite of the subdued June estimate, total sales for the first six months of 2019 (354,000) were 2.2% higher than the comparable total for 2018 (346,000). We expect the volume of new home sales to continue to expand along the current modest pace, subject to monthly volatility and supply-side cost concerns.

Inventory increased 9.4% from a year ago to a level of 338,000 single-family homes for sale in June. The current months’ supply stands at a near normal level of 6.3. This marks a somewhat elevated level of inventory, suggesting ongoing soft conditions for home construction in the near-term. However, sales increased in the not started construction category (205,000 units), suggesting construction growth ahead.

Median new home sales price (price of a home in the middle of the distribution) increased 2.3% in June to $310,400 compared to May but essentially unchanged from a year ago ($310,500). Despite the lower mortgage rates in the recent weeks, the new home sales pace is weak as a result of housing affordability concerns.

For the first six months of 2019 (and relative to the first six months of 2018), new home sales were up 9.5% in the South, 19.4% in the West, and down 17.6% in the Midwest and 50.0% in the Northeast, due to some tax reform related effects and affordability.


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