The tally was off by 6.6% in June, its third consecutive monthly decline.

By Manuel Gutierrez, Consulting Economist to NKBA

Key Takeaways:

• The current pace is below 2019, as high prices and low supply are having an effect.
• The Midwest, with a sales increase of 6%, is the only region to buck the trend.
• Average prices for new homes have fallen in recent months, but at $429,000, they are still 12% ahead of last year

Sales of new homes fell 6.6% in June to an annual rate of 676,000 units, marking the third consecutive month of falling sales.

The current pace brings the level to just under the 683,000 homes sold in 2019. Whether the recent decline is the result of supply problems (like builders facing labor and material shortages) or weak demand driven by higher home prices, is unclear. However, it seems that the burst of strong housing sales in the second half of last year has come to an end.

Unlike realtors who sell homes that are already built, builders of new homes have the advantage of being able to sell homes prior to actual construction. Figure 2 shows that the proportion of homes sold but not yet started has increased to 34%, from 29% at the end of 2019.

Similarly, the percentage of homes sold that are still under construction has risen from 34% to 43% this year, perhaps because the time needed to complete a home has increased due to labor shortages and supply-chain disruptions.

The number of homes sold that are completed has fallen dramatically since early last year. The rush to purchase homes in March/April 2020 had sent their share of the total soaring to 42%. It is down to 23% today.

Three of the four U.S. regions contributed to the sales drop, with the Midwest the only exception. Its sales increased by 6% in June. However, the 92,000 homes sold annually in this region represent only 14% of total U.S. sales (Figure 3).

The biggest decline in percentage terms was in the Northeast, with sales falling by 28%. However, the region generates a very small number of home sales: just 31,000 in June.

The largest region is the South, which accounts for more than half (54%) of new home sales. Sales there dropped by 8% in June to an annual rate of 367,000 homes. Note that the 31,000-unit drop was equal to the total sold in the entire Northeast.

The West, which also has significant sales, saw a 5% falloff to an annual pace of 186,000 units. The region accounts for 28% of total U.S. sales.

Sales in the two largest regions, the South and West, also lag volumes seen in 2019.

A quarter of all homes sold in the second quarter of 2021 were valued at $500,000 or more, compared to just 15% for the same period last year.

Higher home prices might be acting as a deterrent to greater sales. Although both median and average home prices fell in June, they are both substantially above year-ago levels (Figure 4). The average price of a new home now stands at $429,000 — 12% higher than a year ago.

The average price, shown in the right panel of Figure 4, hovered around $385,000 in the three years prior to the pandemic. It then rose substantially throughout the last year to max out at $437,000 in April, but has since fallen in May and June.

A continuing bright spot for members is the sharp increase in high-end homes priced at $500,000 or more. Over a quarter of all homes sold during the second quarter met this criterion. This is significantly higher than the 15% that did so in the second quarter of 2020. This percentage has been remarkably consistent: For the past eight years, high-end homes averaged just under 16% of all homes sold.

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