Sales of new homes plunged almost 6% for the month, following a similar but less severe drop for existing home sales.
By Manuel Gutierrez, Consulting Economist to NKBA
Mimicking the pattern for existing home sales, which fell in April by 2.7%, sales of new single-family homes dropped for the month, but by a larger 5.9% to an annual rate of 863,000 units. This shortfall nearly cancelled the gains enjoyed in March, when sales had risen to an annual rate of 917,000 units.
Last month’s drop puts the pace at the low-end of sales experienced since the middle of last year (Figure 1). New-home sales over this period have ranged from 839,000 to 977,000 units, on an annualized basis.
Despite the decline in April sales, Figure 1 clearly shows that new-home sales over the last year have been exceptionally robust, especially compared to sales for the preceding four years which averaged 621,000.
Three of the four U.S. regions posted a decline in April home sales. Leading with the biggest drop, as has often been the case, was the Northeast, which fell by 14% to a pace of 44,000 units.
Figure 2 shows that home sales in both the Midwest and the South dropped by a similar magnitude in April — 8% for each of the regions. Midwest sales fell to 110,000 units, while in the South — the largest of the four regions accounting for 63% of all April sales of new homes — fell to 545,000 units.
As suppliers begin to improve efficiencies in lumber deliveries, prices should start to normalize in a relatively short period of time.
The only region posting a gain in new-home sales was the West, rising by 8% to an annual rate of 164,000 units.
Interestingly though, as illustrated in Figure 2, new-home sales in the other three regions are currently at the same elevated levels attained immediately after the COVID-19 shutdown. This is not the case for the West, where sales are currently near their pre-pandemic pace.
Despite the April falloff, the average and median prices of homes sold are sharply higher than a year ago. The median sale price in April was $372,000, up 9.9% above last year, while the average hit an all-time record of $435,000, 13% above the year-ago period.
The strong demand for housing, shown by elevated sales volume over the last few months, is not surprisingly driving housing prices higher.
However, another very significant factor is the rising price of commodities used for new housing construction. Lumber prices in particular have been a major factor in this seemingly endless rise. Strong demand for housing, which may have caught lumber producers unaware, is the main reason for the spike, and it’s also resulted in shortages. However, the same high material prices, and the profit opportunities they represent, is the incentive for suppliers to determine how to improve delivery efficiencies. The expectation is that as supply begins to catch up with demand, prices will return to normal over a relatively short period of time.
