New Home Sales Drop 5.9% in May Due to Rising Housing Costs

Increased cost of building materials coupled with overall housing price increases has lead to a dip in new home sales for May 2021.

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As new home construction and single-family construction continue to grow in 2021, new home sales have fallen to their lowest rate over the last 12 months due in part to new homes costing upwards of 18% more compared to last year.

New data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, alongside the National Association of Homebuilders, shows sales of newly built, single-family homes fell 5.9% in May to a 769,000 seasonally adjusted annual rate. The data also suggests the drop in sales is due largely to overall housing price increases, as well as the availability of building materials like lumber.

As far as the data is concerned, 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 May reading of 769,000 units is the number of homes that would sell if this pace continued for the next 12 months.

“While higher prices have shifted some buyers to the sidelines, NAHB survey data indicates that approximately 20% of builders have limited sales activity in recent months in order to manage supply-chains of materials and labor availability.”

Robert Dietz, chief economist, NAHB

“New home prices have increased over the last year due to higher material costs and delays for deliveries,” says Chuck Fowke, chairman of the National Association of Home Builders and a custom home builder from Tampa, Fla. “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 percent higher than a year ago. And OSB prices are up 380 percent over the last year.”

Inventory remains low at a 5.1-month supply, with 330,000 new single-family homes for sale, 3.8% lower than May 2020. Supply-side challenges remain an issue, with the count of new homes sold that had not started construction up 76% over the last year. In addition, the number of new homes sold that are completed and ready to occupy is down 33%.

“As expected, new home sales have continued to soften this spring,” says Robert Dietz, chief economist, NAHB. “While higher prices have shifted some buyers to the sidelines, NAHB survey data indicates that approximately 20% of builders have limited sales activity in recent months in order to manage supply-chains of materials and labor availability.”

The median sales price was $374,400, up 18 percent from the $317,100 median sales price posted a year earlier.

“Entry-level buyers are being most affected by higher prices,” adds Dietz. “Just a year ago, shares of sales priced below $300,000 accounted for 44% of sales, while this May it has dropped to 26%.”

Regionally on a year-to-date basis, new home sales rose in all four regions, up 48.7% in the Northeast, 33.5% in the Midwest, 32.3% in the South and 5.6% in the West. These significant increases are due in part to lower sales volume during the COVID-19 crisis a year ago.