Key Takeaways:

  • Builders’ inventories continue to increase and are 27% ahead of last year.
  • Only 10% of inventory are completed homes for immediate occupancy.
  • Both median and average new-home sales prices showed healthy gains in July.
  • Lack of available homes at lower prices has led to price increases across the board.

By Manuel Gutierrez, Consulting Economist to NKBA

 

Following three consecutive months registering a cumulative decline of 20%, sales of new homes squeezed out a small 1% gain to an annual rate of 708,000 units. Sales still remain at the lowest levels seen in the last 10 months, with no signs of rebounding to the high purchasing activity seen between July 2020 and March 2021.

The July sales uptick came amid a sharp increase in the inventory of homes for sale. Following months of price and demand pressures driven by relatively low inventory, builders have increased their inventory to 368,000 homes, up 27% from a year ago.

However, most homes for sale are not available for immediate occupancy. Figure 2 shows that only 10% of the inventory is completed homes, 62% are homes under construction, and a sizable 29% are homes for which construction has not yet begun.

Regionally, sales in the Northeast and Midwest fell by double-digits in July. The largest drop was in the Northeast, down 24% to just 22,000 homes sold on an annualized basis.

The average price of a new home rose 3.8% in July to an all-time record of $446,000.

Similarly, sales in the Midwest fell by 20%, but actual volume was higher at 71,000 units (annualized).

Sales in the South rose modestly by 1%, to an annual rate of 400,000 homes. Sales in the West, however, rose by a respectable 14% to an annual rate of 215,000 units. Unlike the other three regions, sales in the West have been rising since March.

Note in Figure 3 that the current sales rate in all regions is more or less back to pre-pandemic levels. That is, the surge in volumes seen over the last eight to 10 months might have been just a transitory phenomenon.

Sales prices of new homes continue to increase. For July, the median price reached $390,000, up 5.5% from the previous month, but a substantial 19% higher than a year ago.

Similarly, the average price rose by 3.8% for the month, to reach an all-time record of $446,000. Average prices are also substantially higher than last year, up 18%.

The lack of homes at the lower price range has been propelling overall prices upward. Just 11% of the homes sold in the second quarter were priced under $250,000. This is significantly fewer than in recent years, when more than a quarter of the homes were sold under that amount.

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