Sales of newly built, single-family homes fell to the lowest pace in a year, down 5.9% in May to a 769,000 seasonally adjusted annual rate, according to data released Wednesday by the Department of Housing and Urban Development and the U.S. Census Bureau.
Regionally, new home sales rose in two of the four regions in May. Sales grew 33% in the Northeast, 6.7% in the West, were flat in the Midwest, and down 14.5% in the South.
Against the backdrop of the COVID-19 pandemic, new home sales are still 9.2% above where they were a year ago, when COVID-related procedures froze the new home market in place.
Related supply chain issues have resulted in a big jump in the price of a new home over the past year. The median sales price of a new home last month was $374,400, an 18% increase over the same period a year earlier. The average sales price was $430,600 in May.
A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. For new homes, that supply is sitting at roughly 5.1 months at the current sales rate. Supply-side challenges remained a persistent issue, with the count of new homes sold that had not started construction, up 76% over the last year.
“New home prices have increased over the last year due to higher material costs and delays for deliveries,” said Chuck Fowke, chairman of the National Association of Home Builders. “Policymakers must take action to improve supply-chains in order to protect housing affordability.”
While lumber costs have come down in recent weeks, they are still more than 210% higher than a year ago, Fowke said. Prices of oriented strand board (OSB), the material used most prominently for sheathing in walls, flooring and roof decking, are up 380% over the last year.
“As expected, new home sales have continued to soften this spring. While higher prices have shifted some buyers to the sidelines, NAHB survey data indicates that approximately 20 percent of builders have limited sales activity in recent months in order to manage supply-chains of materials and labor availability,” said NAHB chief economist Robert Dietz.
According to Dietz, entry-level buyers are the demographic most affected by higher prices. Just a year ago, homes priced below $300,000 accounted for 44% of sales, while this May it has dropped to 26%.
On Tuesday, the existing home sales market showed similar supply and affordability struggles. Existing home sales fell for the fourth consecutive month in May, down .9% from April to 5.8 million. Lack of inventory continues to be the overwhelming factor holding back overall home sales, but falling affordability is simply squeezing some first-time buyers out of the market
“These restrictive conditions in the existing home market should continue to drive new construction, as well as strong demand driven by the continued economic recovery and sustained low interest rates,” said Ruben Gonzalez, chief economist for Keller Williams.
“We see new home sales and construction in general trending about the historical average least through the end of 2021,” said Gonzalez. “The fall in lumber prices was good news across the housing industry and we have hopefully moved past peak lumber prices and builders will be able to feel more confident putting product on the market with less uncertainty about costs