Surging Prices Hurt New Home Sales

The seasonally adjusted rate in March was 763,000, down an even steeper 12.6% compared to March 2021, the US Department of Housing and Urban Development and the US Census Bureau reported.

“Growing affordability challenges are slowing new home sales and taking a toll on the housing market,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Ga. “Mortgage rates jumped nearly a full percentage point between the end of February and March, and builders continue to face escalating construction and development costs – which are putting upward pressure on new home prices.”

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 March reading of 763,000 units is the number of homes that would sell if this pace continued for the next 12 months.

Regionally, new home sales were mixed in March. In the Northeast, they were up by 10.5% from the previous month, and new home sales also increased by 8.5% in the West.

But those gains were offset by sales in the South falling by 13.9% and those in the Midwest dropping by 9.2%.

“Buyers are facing sticker shock due to deteriorating affordability conditions and a lack of existing home inventory,” said Danushka Nanayakkara-Skillington, NAHB’s assistant VP of forecasting and analysis. “Only 14% of new home sales in March were priced below $300,000. A year ago, it was 34%.”

Higher home prices and rising mortgage rates are sidelining potential buyers. The median sales price of a new home surged 21% from a year ago, reaching $436,700 in March – a 9% jump month-on-month.

The inventory of new houses for sale at the end of March was an estimated 407,000, a whopping 52.4% above the same year-ago period – a 6.4-month supply at the current sales rate. Just 35,000 of those homes, however, are completed and ready to occupy.

By David Schollaert, David@SteelMarketUpdate.com