As the market has cooled due to higher costs, July recorded a slight gain of 1% for sales of newly-constructed single family homes, according to estimates from the Census Bureau and HUD. The July seasonally adjusted annual rate (708K) was 27% lower than a year ago, due to builders slowing sales as a consequence of higher material and other costs and declining availability of labor, material and lots. Higher prices have also affected housing affordability, with new home prices up on a median basis by more than 18%. As we expected last month, there was an upward revision for the June sales estimate.
Despite higher prices, residential demand continues to be supported by low interest rates, 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 July, the median price of a newly-built home was 18% higher than a year ago, at $390,500.
Higher costs have priced out some buyers, particularly at the lower end of the market. A year ago, 42% of new home sales were priced below $300,000. In July 2021, only 24% of new home sales were priced below $300,000. Thus, while demographic-based demand remains solid, lack of entry-level supply remains a challenge for the market.
Looking back to the Spring of last year, the April 2020 data (570,000 annualized pace) marked 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. The July data suggest stabilization is occurring at the new prices/costs of the market.
Sales-adjusted inventory levels increased to a 6.2 months’ supply in July, a balanced supply. 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 20% of inventory a year ago. They are 10% of the total in July 2021. While inventory is rising, a growing share is of homes that have not started construction. As of July 2021, 29% of new home inventory consists of homes not started construction, compared to 20% a year ago.
Regionally on a year-to-date basis new home sales were higher in all four regions, up 7.5% in the Northeast, 10.6% in the Midwest, 9.1% in the South, and 0.5% in the West.