After a prior cooling trend for the volume of new home sales, sales contracts increased 1.5% in August according to estimates from the Census Bureau and HUD. The August seasonally adjusted annual rate (740,000) was 24% lower than a year ago, when an unsustainable rebound took hold in the market. Higher prices have also affected housing affordability, with new home prices up on a median basis by 20% year-over-year.
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 August, the median price for new home sales was $390,900.
Higher costs have priced out some buyers, particularly at the lower end of the market. A year ago, 43% of new home sales were priced below $300,000. In August 2021, only 30% 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, the volume of sales declined from February 2021 to June, falling 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 and August data suggest stabilization is occurring at the new prices/costs of the market.
Sales-adjusted inventory levels were effectively unchanged at a 6.1 months’ supply in August, 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, ready to occupy.
28% of new home inventory consists of homes that have not started construction, compared to 21% a year ago. This inventory is easier to pull back in the case of declining demand.
Regionally on a year-to-date basis new home sales are down 1% in the Northeast, up 4.4% in the Midwest, up 4.5% in the South, and down 2.3% in the West.