New-build home sales fell 12.6% in July from June and were 29.6% lower than a year ago, according to a joint report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. It was the second consecutive month of declines.
Just 511,000 new homes were sold last month, seasonally adjusted year on year, down from a revised 585,000 in June. That is the lowest sales figure since January 2016. A year ago, 726,000 new-build homes were sold.
Meanwhile, the median price for a new-build home rose to $439,400, up from $402,400 the previous month.
“New home sales continue to crumple under the weight of high prices and higher mortgage rates,” said Robert Frick, a business economist at the Navy Federal Credit Union.
As inventories of new homes rise, there is likely to be a drop in prices, Frick said, although there is a limit to how low they can go, given the costs of materials, land and labor that are baked into construction costs.
“As builders withdraw plans to build more homes, we won’t build our way out of the current housing crisis in the coming years,” Frick said.
The latest data continues to paint a challenging picture for the US housing market, said John Fish, CEO of Suffolk Construction and chairman of the Real Estate Roundtable.
“As the Federal Reserve tries to reduce inflation, rising construction and land costs, supply chain disruptions and labor shortages are contributing to the widening gap between housing supply and demand,” he said.
In the short term, Fish said, controlling inflation will be an important step toward improving the housing market and the broader economy. But there are structural issues that need to be addressed for a successful long-term economy, Fish said, such as developing land-use policies that are aligned with federal and local governments, developing more housing and investing in technologies that improve the economy. the construction costs to make development more attractive.
This time around, the housing market adjustment will likely be much less severe than the correction in 2008 because there are still fewer homes for sale than households who would like to buy them, says Kelly Mangold of RCLCO Real Estate Consulting.
“The underlying demand for new homes for sale remains,” she said.
And one consequence of the downturn for buyers is that there may be less competition and more price cuts.
“For those who are still motivated to buy, the market has become a less competitive space and buyers are not dealing with the bidding wars that characterized many of the earlier phases of the pandemic,” she said.