New home sales fell to the lowest pace in a year, with prices jumping 18 percent on a year-over-year basis, due to the high costs and uncertain availability of building materials, lots, and labor. Sales of newly built, single-family homes fell 5.9 percent in May to a 769,000 seasonally adjusted annual rate, according to newly released 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,” said Chuck Fowke, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Tampa, Florida. “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 percent higher than a year ago. And OSB prices are up 380 percent over the last year.”
“As expected, new home sales have continued to soften this spring,” said NAHB Chief Economist Robert Dietz. “While higher prices have shifted some buyers to the sidelines, NAHB survey data indicates that approximately 20 percent of builders have limited sales activity in recent months in order to manage supply-chains of materials and labor availability.”
A new home sale occurs when a sales contract is signed or a deposit is 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 this 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 percent lower than May 2020. Supply-side challenges remain an issue, with the count of new homes sold that had not started construction, up 76 percent over the last year. The count of new homes sold that are completed and ready to occupy is down 33 percent.
The median sales price was $374,400, up 18 percent from the $317,100 median sales price posted a year earlier.
“Entry-level buyers are being most affected by higher prices,” noted Dietz. “Just a year ago, shares of sales priced below $300,000 accounted for 44 percent of sales, while this May it has dropped to 26 percent.”
Regionally on a year-to-date basis, new home sales rose in all four regions, up 48.7 percent in the Northeast, 33.5 percent in the Midwest, 32.3 percent in the South and 5.6 percent in the West. These significant increases are due in part to lower sales volume during the COVID-19 crisis a year ago.