(06-23-21) New Home Sales Come in Well Below Expectations – New home sales fell 5.9% in May to a 769,000-unit pace and sales were revised lower for each the prior three months. May’s drop was concentrated in the South, where sales fell 14.5% to a 432,000-unit pace. The South is by far the largest region for new home sales. By contrast, sales rose 33.3% in the Northeast to a 52,000-unit pace and rose 6.7% in the West to a 190,000-unit pace. Sales in the Midwest were unchanged at a 95,000-unit pace. The recent pullback in new home sales reflects intensifying affordability challenges for first-time home buyers and growing frustration about the lack of new and existing homes available for sale. While we remain optimistic about housing demand for the year as whole, we may see a few more months of underwhelming sales. Several builders have reported lighter prospective buyer traffic in recent weeks, particularly in what had been some of the hottest housing markets in the South and Mountain West. New home sales fell 5.9% and sales for each of the prior three months were revised notably lower. May’s 769,000-unit sales pace was the slowest since last May, when the economy was just emerging from the lockdowns. The pullback in new home sales likely reflects intensifying affordability concerns. The median price of a new home has surged 18.1% over the past year to $374,400. The price spike reflects the resurgence in demand as the economy reopened, combined with low inventories of new and existing homes and soaring building materials prices. We suspect the spike in home prices is having a disproportionate impact on buyers in the South, where sales fell 14.5% in May, and parts of the Mountain West. Both regions have seen an influx of buyers from higher-priced housing markets in the Northeast and the West Coast. The influx of buyers has pushed prices up rapidly and priced out local buyers that could not match the purchasing power of these new residents. This experience has been common in markets in the West and Southwest, with Denver among the first markets overwhelmed by home buyers from the West Coast and Phoenix and Austin among the most recent. Virtually all of May’s drop in new home sales occurred among homes priced between $200,000 and $400,000. Sales within this price range accounted for 53% of new home sales in May, down from 61% in April and 59% for all of 2020. By contrast, sales of homes priced $400,000 or more accounted for 45% of new home sales in May, up from 37% the prior month and 34% during 2020. Part of the drop in mid-priced homes is due to the sharp drop in sales in the South, where homes in this price range account for a larger share of overall sales. We suspect the drop in sales is due to a lack of homes available at these price points. Builders have slowed new construction in recent months, hoping to catch a break on soaring lumber prices and ongoing shortages of labor and other key inputs. That decision appears to have been the right one, as lumber prices have fallen sharply in recent weeks. Those lower prices, however, have not reached lumberyards and builders but should later this summer, which should bolster sales later this year.
Pipe Exchange
14025 West Road
Suite 100
Houston, TX 77041
- Phone: 713.934.9480
- Fax: 713.934.9490
- Email: sales@pipexch.com
