(07-26-21) We had a sense that new home sales would disappoint in June and were expecting a number well below the 800,000-unit annual rate consensus. The actual print was even lower, with new home sales dropping 6.6% in June to a 676,000-unit annual rate, and sales revised down by cumulative 90,000 units during the prior three months. Since peaking at 993,000-unit annual rate in January, new home sales have lost considerable momentum. The downward revision will likely lead to some downward revisions to Q2 GDP, as home sales drive spending for a wide variety of goods and services, ranging from home furnishings to pest control. While there have already been a number of calls projecting that housing has peaked for the cycle, we do not see the recent pullback in sales as all that dire. There are at least three issues currently restraining new home sales. Home prices skyrocketed late last year, triggering some hesitancy on the part of buyers. The hesitancy came at a time when there were a growing list of distractions, as many consumers have increased spending on travel and leisure. Finally, home builders have been limiting sales at new home communities because they are having a tough time securing the materials, workers and appliances needed to build a new home. The important point is that home builders are still selling virtually everything they build. Inventories of completed homes, while they have increased slightly, remain near an all-time low. Demand For New Homes Remains Strong at the Upper End – There have been plenty of signs that new home sales were coming under pressure. Consumer confidence surveys had reported a record decline in the proportion of households that felt now was a good time to buy a home, and the proportion of consumers stating they planned to buy a home has been trending lower since the start of the year. Some of the pullback reflects higher new home prices, but a bigger problem is the lack of lower priced homes available for sale. One way of seeing this is to look at the split between the rise in the median price of a new home, which rose 6.1% over the past year to $361,800, and the average price of new home, which jumped 12.1% over the past year to $428,700. The larger rise in the average home price reflects the growing share of new home sales occurring at higher price points and the smaller share of sales occurring at lower price points. New homes priced $500,000 or more have risen to 28% of new home sales from just 15% last June, while homes priced below $300,000 have fallen to just 29% of new home sales, down from 39% a year ago. Sales at the upper end are being driven by the affordability migration away from higher cost housing markets on the West Coast and Northeast to lower cost areas in the Mountain West and South. The influx is also triggering an affordability migration in those receiving markets, sending buyers to outlying areas and secondary markets, where the large national builders tend to have a smaller presence.
Pipe Exchange
14025 West Road
Suite 100
Houston, TX 77041
- Phone: 713.934.9480
- Fax: 713.934.9490
- Email: sales@pipexch.com