Affordability and decreased buyer demand continue to put downward pressure on the housing construction industry, with new-home sales seeing a significant month-to-month dip in the latest data from the Census Bureau and the Department of Housing and Urban Development.
The New Residential Sales report saw new-home sales fall 7.3% to a rate of 580,000 in May, down from April’s revised rate of 626,000 (originally reported as 682,000). This is also down 6.8% year-over-year (from 622,000).
The decline in this month’s new-home sales data reflects a “challenging market of increased costs that make delivering affordably-priced inventory difficult,” as stated by Realtor.com® Senior Economist Joel Berner.
Berner noted that this is “evidenced by the share of sales under $300K—down from last May with basically the same median price.”
“At the same time, buyer demand is being squeezed by the high cost of living and geopolitical uncertainty, and even the generous incentives builders are offering are not moving the needle on sales volume nationally,” he continued.
Results were vastly mixed across the regions. New-home sales in the Northeast were up 3% month-over-month and 17.2% year-over-year to a rate of 34,000. The Midwest saw sales rise 16.2% month-over-month to a rate of 79,000, but were down 3.7% year-over-year. Sales in the South were down 4.1% month-over-month and 5.4% year-over-year to a rate of 350,000. Lastly, the West saw sales drop 26.9% month-over-month and 17% year-over-year to a rate of 117,000.
This fall in sales follows a similar trend in housing starts in the latest New Residential Construction report, which were down 15.4% month-over-month and 8.7% year-over-year in May, bottoming out to a six-year low. Completed home constructions were also down 8.1% month-over-month and 14.2% year-over-year in conjunction.
Homebuilder confidence also remains negative due to the continued challenges facing the construction industry, seeing another fall in June. June’s two-point fall to 35 marked the 14th straight month that sentiment has remained below 40, a streak not seen since 2011-2012 during the foreclosure crisis.
New-home inventory currently sits at 496,000, up 2.3% month-over-month but down 1.4% year-over-year. This represents a 10.3 months supply, up 10.8% month-over-month and 6.2% year-over-year.
In continuing challenges to affordability of new homes, the average sales price of a new home was $540,600 in May, up 7.8% month-over-month and 5% year-over-year. The median new home price clocked in at $424,900 in May, up 2% month-over-month and unchanged year-over-year.
The National Association of Home Builders Assistant VP for Forecasting and Analysis Danushka Nanayakkara-Skillington noted that while incentives and price adjustments are still being used to promote sales, “many households remain priced out of the market.”
She explained that there needs to be a “sustained reduction in financing costs” to improve affordability and therefore housing demand.
On that note, Berner added that there may be new opportunities for builders due to the Senate and House passing of the 21st Century ROAD to Housing Act—now on the president’s desk for signing—“which promises to result in a rollback of regulatory burdens for building in parts of the country where new construction is most needed.”
“Smaller-scale, more affordable urban construction could meet the market where it is,” he concluded.
