Key Takeaways:
- Annual rate now at 800,000 units
- Despite strong gains, total units are 18% behind last year’s pace
- Nearly a third of all new homes sold in September had not yet been started, much higher than historical averages
- Regionally fully 62% of all new homes built for the month were in the South
- The median new home prices in September was $409,000, the average, $452,000
By Manuel Gutierrez, Consulting Economist to NKBA
Following the positive results for existing homes, new home sales rose in September to an 800,000-unit annual rate (Figure 1). This is a remarkably strong 14% increase from August sales of 702,000, which were revised down from the earlier 740,000-unit estimate.
The growth in September was the strongest monthly gain in more than a year, since July 2020’s nearly 16% gain. That July increase followed two months of even more impressive gains in the 20% range, but those came off the heels of the economic shutdown when sales activity was unusually low. Despite September’s sharp increase, new home sales are tracking 18% behind last year’s volume of 971,000. In fact, new home sales exceeded the 800,000 annual pace for several months last year, which is highlighted by the gray square in Figure 1.
Given the current labor and materials shortages, it is not surprising to find that a large portion of new home sales are for homes not yet started. In September nearly one third of the homes sold have yet to be built (32.9%). Barely over a quarter (25.9%) of the new homes sold were already completed. Before the pandemic, well over a third of new homes sold were completed and ready to be occupied.
Inventory of completed new homes continues to fall. In September, fewer than one in ten were completed (Figure 2). This is much less than normal. Prior to last year, approximately one-in-four homes for sale were completed and ready for the new owners to occupy.
Builders continue to increase their inventory of homes for sale by listing homes not yet started. In September this group accounted for 28% of the total inventory.
One in three new homes sold in September hadn’t even been started, reflecting continued demand strength.
Regionally, the jump in September sales was enjoyed by three of the four regions. Only the Midwest saw a decline, with new home sales falling by a modest 2% to a 64,000- unit rate.
The biggest increase in new home sales was in the Northeast, which saw a 32% jump to 41,000 units. However, such a sharp increase in this region is not unusual. Its relatively low sales volume lends itself to large percentage changes in either direction.
The South, however, is a different story. Its sales grew by a robust 17% to 498,000, which is impressive since the region accounts for the most new homes built by far. In September, 62% of all new homes built were in the South.
The second largest region, the West, accounted for 25% of new home sales. It saw a monthly increase of 8%, bringing it just short of 200,000 units.
However, sales in three of the four regions are significantly lower than a year ago. Only the Northeast posted sales higher than in the same period last year.
Meanwhile, the Midwest was off the most since the year-ago period, down by 34%. The West wasn’t much better with a shortfall of 28%, followed by the South, which was down by 12%.
The increase in September sales came with a modest increase in house prices. The median price of a new home rose 1.8% in September to $409,000. The average new home price also rose, but by a slightly more modest 1.1% to $452,000 (Figure 4).
The strong housing demand, combined with rising materials and labor costs, suggest that house prices will continue to rise in the near future.
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