Surging prices prompted some prospective buyers to press pause on their search for a new single-family home in April, causing sales to drop 5.9 percent on a monthly basis to 863,000 annualized units, according to the US Census Bureau.
In a move that Fannie Mae Chief Economist Doug Duncan called “unanticipated,” March’s sales estimate was revised to 917,000 units, down from 1.02 million units. April’s weakened performance, however, was largely expected due to rising material costs, labor shortages, and a lack of buildable lots for sale.
There were 316,000 new homes on the market in April, the highest level of inventory in a year. This equates to a 4.4-month supply at the current sales rate, a slight improvement over March’s 4.0-month supply.
Although new homes were purchased at the slowest pace since last June (with the exception of February’s cold snap-induced slump), compared to the same period last year, sales totals are up about 26 percent. Buyers scooped up a record number of pre-construction homes last month, eager to take advantage of still-low mortgage rates. Sales of to-be-built homes rose 16.5 percent from March and April to “the highest level since 2006,” noted Duncan.
“This growing construction backlog, combined with another strong rise in the median home sales price (up 20.0 percent from a year earlier), suggests to us that demand for new homes remains strong but homebuilders are struggling to keep up,” Duncan added.
The median sales price of a new single-family home jumped 20.1 percent year-over-year to $372,400. High prices for new homes have been attributed to rising material costs, particularly softwood lumber, which increased to $1,200 per thousand board feet in April — a 110 percent spike over the previous year.
The National Association of Home Builders (NAHB) estimates that costs for the average single-family home have gone up by $36,000 due to the ongoing lumber shortage, caused by a variety of factors including sawmill closures related to COVID-19 outbreaks and a mountain pine beetle infestation in British Columbia. There are widespread reports of homebuilders delaying construction until lumber prices begin to normalize, something that’s not expected to happen until the fall.
In a separate news release published last week, the Census Bureau reported that single-family housing starts plummeted 13.4 percent month-over-month in April to 1.05 million annualized units. In contrast to 2019 averages, the pace of construction was up 22 percent, but high material costs and labor shortages remain major obstacles for both housing starts and potential new home sales.
Nevertheless, LendingTree Chief Economist Tendayi Kapfidze believes that high demand for housing and strong builder sentiment will prevent the housing market from “[going] belly-up anytime soon.”