Data published today by the US Census Bureau has left some housing experts wondering whether the party’s over for the new construction market.
June’s new residential sales report pointed to a 6.6 percent monthly decline in the number of new single-family home sales, which amounted to 676,000 annualized units. Compared to June 2020’s summer sales surge — fueled by pent-up buyer demand and low mortgage rates — home buying activity dropped 19.4 percent to the lowest level in 14 months.
June also marked the third consecutive month of declining new home sales, largely attributed to homebuilders limiting supply as they grappled with backlogs and high material costs. Some builders are reportedly pressing ‘pause’ on new project launches until conditions normalize, understanding that buyers will be less receptive to sky-high home prices.
The median price of a new home sold in June rose to $361,800, an increase of 6 percent year-over-year. Faced with sticker shock, many Americans are planning summer vacations instead of trips to new home sales centers.
“Some of the slowing in the sales pace likely reflects a move toward normalization in homebuying demand following the pandemic-related surge,” wrote Doug Duncan, Chief Economist at Fannie Mae.
“A recent measure of homebuilders’ sentiment revealed a pullback in the buyer foot traffic metric, which reached the lowest level in nearly a year, while the June 2021 Fannie Mae Home Purchase Sentiment Index® showed a further increase in the share of respondents indicating it’s a bad time to buy a home,” he added.
New home inventory improved from a 5.5-month supply in May to a 6.3-month supply in June at the current pace of sales. At the month’s end there were an estimated 353,000 new homes listed for sale on a seasonally adjusted basis. The share of pre-construction homes listed for sale climbed 11.7 percent to 353,000, while completed home sales dropped near record lows.
In response to dwindling demand caused by soaring home prices, Capital Economics’ Matthew Pointon wrote that “a return to the boom of last year is not on the cards.” However, new home sales are expected to pick up somewhat during the coming months as lumber prices fall and labor shortages ease. “We suspect new home sales will end the year at around 850,000 annualised,” added Pointon.