Eye On Housing
Contracts for new, single-family home sales increased 14% to an 800,000 seasonally adjusted annual rate in September according to estimates from the joint release of the U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau. On a year-over-year basis, the September estimate was 18% lower than a year ago, when an unsustainable rebound took hold in the market. The August estimate was revised downward from an initial reading of 740,000 to a new estimate of 702,000. Higher prices have also affected housing affordability, with median home price increasing by almost 19% from a year ago.
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 September, the median price for new home sales was $408,800.
Higher costs have priced out some buyers, particularly at the lower end of the market. A year ago, 35% of new home sales were priced below $300,000. In September 2021, only 21% 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 (582,000 annualized pace) marked the low point of sales for the 2020 recession. The April 2020 rate was 23% 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 past three months’ data (July, August, and September) suggest stabilization is occurring at the new prices/costs of the market.
Sales-adjusted inventory levels were effectively unchanged at a 5.7 months’ supply in September, 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.
Compared to 21% a year ago, 28% of new home inventory consists of homes that have not started construction. This inventory is easier to pull back in the case of declining demand.
Regionally, on a year-to-date basis, new home sales rose 1.9% in the Northeast, 3.4% in the Midwest and 1.6% in the South, but fell 8.8% in the West.
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