Eye On Housing
As supply-side challenges continue, June recorded a decline of 6.6% for sales of newly-constructed single family homes, according to estimates from the Census Bureau and HUD. The June seasonally adjusted annual rate (676K) was the lowest since April 2020, due to builders slowing sales as a consequence of higher material costs and declining availability of labor, material and lots. Higher prices have also affected housing affordability. Nonetheless, we expect an upward revision for the June sales estimate next month due to data from other NAHB surveys suggesting solid market conditions.
Despite higher prices, residential demand continues to be supported by low interest rates (which have declined in recent months), a consumer focus on the importance of housing, and solid demand in lower-density markets like suburbs and exurbs. However, higher building costs, longer delivery times, and general unpredictability in the residential construction supply-chain are having measurable impacts on new home prices. In June, the median price of a newly-built home was 6% higher than a year ago, at $361,800.
Higher costs have priced out some buyers, particularly at the lower end of the market. A year ago, 39% of new home sales were priced below $300,000. In June 2021, only 30% of new home sales were priced below $300,000. Thus, while demographic-based demand remains solid, recent softness for new and existing home sales are a warning concerning home price growth.
Looking back to the Spring of last year, the April 2020 data (570,000 annualized pace) marks the low point of sales for the 2020 recession. The April 2020 rate was 26% lower than the prior peak, pre-recession rate set in January. Sales then mounted a historic surge from April until July, outpacing gains in actual construction. However, since January the trend has been declining and has now dipped below the long-run (post-Great Recession) trend (as indicated by the blue dashed line in the graph above) as the market seeks a new normal.
Sales-adjusted inventory levels increased to a 6.3 months’ supply in June. If the June sales data are revised higher, as we expect, this metric will decline. But the graph above notes the changes in the types of inventory now offered: more homes not started construction/under construction and fewer homes completed.
Completed ready-to-occupy homes were about 22% of inventory a year ago. They are only a little more than 10% of the total in June 2021. The count of new homes in inventory that are completed and ready to occupy is down 45% year-over-year, to just 36,000 homes. The count of new homes in inventory that have not started construction is up 84% over the last year.
Regionally on a year-to-date basis new home sales were higher in all four regions, up 19.5% in the Northeast, 23.9% in the Midwest, 15.6% in the South, and 4.1% in the West. These increases are due in part to lower sales volume during the Covid crisis a year ago.
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