New Home Sales Flat in October After September Data Revision

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Contracts for new, single-family home sales were flat at a 745,000 seasonally adjusted annual rate in October according to estimates from the joint release of the U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau. However, the flat reading was due to a significant downward revision for the September pace (revised from an 800,00 rate to 742,000). Home sales have cooled during 2021, relative to the end of 2020, as construction costs have increased and prices have risen. Median prices are up 17.5% from a year ago. In October, the median price for new home sales was $407,700.

On a year-over-year basis, the October sales rate was 23% lower than a year ago, when an unsustainably strong rebound took hold in the market. Despite being solid this year, due to the cooling from the end of 2020 new home sales are down more than 4% on a year-to-date basis in 2021. Nonetheless, 2021 sales are still on pace to be the second best year since the Great Recession.

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.

Higher costs have priced out some buyers, particularly at the lower end of the market. A year ago, 36% of new home sales were priced below $300,000. In October 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 balanced at a 6.3 months’ supply in October. 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. In fact, inventory that has not started construction is up 82% from a year ago. Completed, ready-to-occupy inventory remains lean at just 38,000 homes nationwide. Nonetheless, the low inventory challenge comes from the resale market, where inventory is at less than a 3 months’ supply.

Regionally, on a year-to-date basis, new home sales have declined 2.4% in the Northeast, 0.1% in the Midwest and 1.6% in the South, and are 12.6% lower in the affordability challenged West.



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