Home Economic Trends New Single-Family Home Sales Remain Brisk but Inventories Rise as Prices Continue...

New Single-Family Home Sales Remain Brisk but Inventories Rise as Prices Continue to Surge – Robert Hughes

Sales of new single-family homes posted a small gain in October, increasing 0.4 percent to 745,000 at a seasonally-adjusted annual rate from a 742,000 pace in September. Despite the gain, sales are down 23.1 percent from the year-ago level (see top of first chart). New home sales and permits for future construction had weak performances in the first half of 2021 but are showing signs of renewed support recently (see top of first chart).

Sales of new single-family homes were up in two of the four regions of the country in October. Sales in the South, the largest by volume, rose 0.2 percent while sales in the Midwest gained 11.0 percent, however sales in the Northeast decreased 11.8 percent while sales in the West were off 1.1 percent for the month. From a year ago, sales were down between 16 and 33 percent in the four regions. Despite the gain in sales, the total inventory of new single-family homes for sale rose 2.9 percent to 389,000 in October, the highest level since September 2008 (see bottom of first chart), putting the months’ supply (inventory times 12 divided by the annual selling rate) at 6.3, up 3.3 percent from September and 80.0 percent above the year-ago level (see bottom of first chart). The median time on the market for a new home continued to fall in October, coming in at 2.4 months versus 3.3 in September.

Recent headwinds for the housing market include somewhat higher mortgage rates and sharply higher home prices. The average rate of a 30-year fixed-rate conforming mortgage was around 3.07 percent in October. The average rate is up from a low of 2.68 in December and about equal to the 3.08 percent in March 2021. The average rate was as high as 4.87 in November 2018 (see second chart).

The median sales price of a new single-family home was $407,700 (see second chart), up from $346,900 in October 2020 (not seasonally adjusted). The gain from a year ago is 17.5 percent. On a 12-month average basis, the median single-family home price is at a record high (see second chart).

Record-high prices and rising mortgage rates are headwinds forcing some buyers out of the market. However, the rise of more flexible working arrangements (i.e. remote work) may provide some continued support for less dense housing. Furthermore, despite tight labor conditions and materials shortages, new home construction continues at a healthy pace. It is likely that these conditions will continue to impact activity in the housing market, and on balance, lead to softer demand, looser supply conditions, and slower future price increases.