Key Takeaways:
- August new home sales are 24% below August of 2020;
- The inventory of homes sold but not started has reached its highest level ever;
- The average price of a new home fell to $443,000 in August, not far below July’s all-time high.
By Manuel Gutierrez, Consulting Economist to NKBA
Sales of new homes rose by a modest 1.5% in August to an annual rate of 740,000 units (Figure 1.) Although this is the second consecutive month of increases, the latest sales volume is still a substantial 19% below the rate of 911,000 homes sold on average from June 2020 through April 2021.
And compared to August 2020, new home sales this past August show a bigger gap yet: they’re 24% below the 977,000 units sold the same month last year.
Along with the increase in new home sales, the inventory rose by 3.3% in August to 378,000 new single-family homes for sale. This is also 32% higher than a year ago, when there were just 286,000 new homes on the market.
Does the increase in the inventory of new homes belie the claim that there is a shortage of homes? Paradoxically, the answer is yes and no.
The percentage of homes sold that have not yet been started rose to 36% in August, the highest percentage in nearly 16 years, since December 2005. This may reflect the inability of builders to deliver completed houses because of materials shortages and labor constraints.
The percentage of homes sold that have not yet been started rose to 36% in August, the highest in almost 16 years.
Figure 2 shows that one of the reasons inventory has risen is because builders have increased the number of homes for sale that have not been started yet. The inventory of homes “not started” has reached its highest level ever (note that the data in Figure 2 are annual.) The percentage under construction has remained relatively flat over the last few years at around 63%, but the proportion of completed homes has fallen to its lowest level since these statistics have become available.
Figure 3 shows that of the four regions in the U.S., only the Midwest saw a substantial drop in new home sales in August. Sales there fell by 31% to 51,000 units (annualized). This is the lowest pace of home sales in this region since November 2012, when they stood at 44,000.
The decline in the Midwest was large enough to cancel gains in the other three regions.
Sales in the Northeast jumped 26% to an annual rate of 29,000 units, but this substantial percentage increase is nearly negligible in terms of the nation’s total home sales, since the Northeast accounts for less than 5% of new home sales in the U.S.
Sales in the West rose by 1% to an annual rate of 215,000 units. The South, which accounts for six in 10 home sales, saw a jump of 6% to 445,000 homes.
The inventory of new homes is still low, however, and when combined with strong demand for single-family houses, continues to put pressure on home prices. This is despite some easing in August.
The average sale price of a new home slipped by 1.2% to $443,000, but still isn’t far below the all-time record reached in July (Figure 4).
Average house prices for new construction today are 15% higher than a year ago, when they sold for $386,000. The median home price was unchanged in August at $391,000, but that’s still 20% higher than a year ago.
The greater increase in the median price, compared to that of the average price, reflects the continued practice that builders have followed of moving away from building smaller, lower-priced houses.
This is a natural business reaction, given the strong demand for single-family houses and the higher profit potential from selling more expensive homes.
Charts:
