After multiple strong months for home builders across the United States, things have started to trend in the wrong direction in April. According to recently released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, building material costs and low inventory have caused new home sales prices to jump 20% on a year-over-year basis, harming housing affordability and driving down the pace of new home sales.
But the issues reach farther than an uptick in home prices, as sales of newly built, single-family homes fell 5.9% in April following a significant downward revision of the March estimate, to an 863,000 seasonally adjusted annual rate.
For data collection purposes, 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. In addition to adjusting for seasonal effects, the April reading of 863,000 units is the number of homes that would sell if this pace continued for the next 12 months.
“Affordability factors are clearly affecting new home sales,” says Chuck Fowke, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Tampa, Fla. “A growing number of builders are limiting sales in order to manage supply chains, including access and cost factors associated with lumber, appliances, and other building materials. Policymakers need to find ways to improve the supply-chain, by facilitating more domestic production, or in cases where that cannot be done, suspending tariffs to allow for more imports.”
Inventory remains low at a 4.4 month supply, with 316,000 new single-family homes for sale, 33.3% lower than April 2020. Completed homes continue to fall as a share of the market, representing only about 11% of the inventory in April, compared to 24% a year ago. The median sales price was $372,400, up from the $310,100 median sales price posted a year earlier.
“After a period of builders holding back price increases, new home prices were 20 percent higher year-over-year per the April Census data,” says Robert Dietz, chief economist, NAHB. “Higher costs have priced out buyers, particularly at the lower end of the market. A year ago, 45 percent of new home sales were priced below $300,000. In April 2021, only 27 percent of new home sales were priced below $300,000.”
Regionally on a year-to-date basis new home sales rose in all four regions, up 50.7% in the Northeast, 45.7% in the Midwest, 45.5% in the South, and 3.6% in the West. These significant increases are due in part to lower sales volume during the COVID-19 crisis a year ago.