May new-home sales dropped to the lowest pace in a year, with prices up 18%. Part of the reason: 20% of builders limited sales activity to manage supply chain problems.
WASHINGTON – New home sales fell to its lowest pace in a year, with prices jumping 18% on a year-over-year basis. The National Association of Home Builders (NAHB) largely blames the high cost and uncertain availability of building materials, lots and labor.
Sales of newly built, single-family homes fell 5.9% in May to a 769,000 seasonally adjusted annual rate, according to data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The May number follows significant downward revisions to the April estimate and previous months’ readings.
“New home prices have increased over the last year due to higher material costs and delays for deliveries,” says Chuck Fowke, NAHB chair and a custom home builder from Tampa. “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% higher than a year ago. And OSB (lumber) prices are up 380% over the last year.”
NAHB Chief Economist Robert Dietz says the new-home sales slowdown was expected.
“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,” Dietz says.
A new home sale occurs when a sales contract is signed or a deposit 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 the current pace continued for the next 12 months.
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. The count of new homes sold that are completed and ready to occupy is down 33%.
The median sales price in May was $374,400, up 18% from the $317,100 median sales price a year earlier.
“Entry-level buyers are most affected by higher prices,” says Dietz. “Just a year ago, shares of sales priced below $300,000 accounted for 44% of sales, while this May it dropped to 26%.”
On a year-to-date basis new home sales rose in all four regions included in the new-home monthly survey – up 48.7% in the Northeast, 33.5% in the Midwest, 32.3% in the South, and 5.6% in the West. However, those significant increases are due in part to lower sales volume during the Covid crisis one year ago.
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