New residential home sales have fallen to the lowest level since the beginning of the pandemic, according to the US Census Bureau’s latest report released on Monday. Despite a monthly decline in median home prices (-2.8%) and an increase in supply (+2 months), new home sales declined 19.4 percent year over year to 676,000, the lowest since April 2020.
Monday’s data marked the third consecutive monthly decline for U.S. new home sales.
On a regional basis, new home sales were the strongest in the South (367,000) and West (186,000), while the Midwest (92,000) and East (31,000) lagged behind.
NerdWallet Home and Mortgage Specialist Holden Lewis said the inventory boost is at the higher end of the market, as homebuyers battle over affordably-priced homes.
“It seems that homebuyers are snubbing the highest-priced new homes and snapping up the lower-priced ones,” Lewis explained in an emailed statement. “That leaves a growing inventory of expensive homes, which are taking longer to sell. In short, home buyers are wary of fast-rising home prices, whether the homes are new or used.”
Although the new-home market is far from cheap, Realtor.com Chief Economist Danielle Hale noted homebuyers could have better luck buying a new home rather than battle fellow buyers in the existing home market, especially as builders ramp up construction.
“As more existing home sellers return to the housing market, builders may have to compete with better-priced existing homes even as they navigate higher costs for the materials and labor needed to build homes,” she said in a statement. “Builders are working through this uncertainty by managing their pipelines, notably expanding the number of homes for sale that are not yet started (+84 percent) compared to last year.”
The Bureau’s new residential construction report released last Thursday backs up Hale’s insight, as single-family housing starts increased on a monthly (+6.3 percent) and annual (+29.1 percent) basis. Although current new-home inventory and production rates are far from what’s needed to close the inventory gap, Realtor.com Senior Economist George Ratiu said it’s enough to provide homebuyers with a much-needed price break.
“As the industry looks beyond the COVID pandemic, builders are grappling with whether to ramp up inventory and pass lower prices to consumers, or take advantage of the current opportunity to offset last year’s setbacks by boosting profit margins,” Ratiu told Inman on Thursday. “In other words, builders aren’t hedging long-term plans on short-term improvements after the past year of pandemic challenges.”
“As factors like materials costs stabilize over the next three months, buyers may start to see some inventory and price relief in the new construction market,” he added.