Sales numbers for new homes in November have shown a fall of about 14 percent compared to the previous year. The rising prices are attributed to low inventories of existing homes, a shortage of building materials, and persistent supply chain disruptions.
Although the sales for new homes have risen 12.4 percent from October, it is a significant downward revision of October 2021 numbers from 745,000 to 662,000, according to the U.S. Census Bureau count. November new-home sales of 744,000 fell below analysts’ expectations of around 766,000, based on the latest report (pdf) published Thursday.
There is a demographically driven demand for new homes in the market as the millennial population reaches a home-buying age, but the high prices are keeping them from making a commitment and most are sticking to rental options. The median sales price for a new single-family home was $416,900.
There isn’t a fervent rush for existing homes either, as median sticker prices went up by 13.9 percent to $353,900 in November from a year back, due to low inventory of just two months supply at the current sales pace.
“A hefty correction appears to be due, but the rapid increases in existing home prices—inventory in that market is only one-third the level in the new home market, relative to sales—is putting extra upward pressure on new home prices,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics in a note to investors, cited by CNBC.
There is a supply of 6.5 months at the current sales rate, with a seasonally‐adjusted estimate of 402,000 new homes at the end of November.
Although supply for new homes keeps rising, homebuilders are reluctant to commit to delivery times because of supply chain constraints. Moreover, there has been a steady hike in the cost of building materials like lumber, which accounts for around 20 percent of the cost in a typical home construction project. Lumber prices went up from $573 in the beginning of November to above $1,000 this month. These building costs are directly passed on to the customer.
Despite the hike in prices, sales numbers have not gone down significantly because of low mortgage rates, but that will change in the coming months as the Federal Reserve revises interest rates, expected to begin early spring. However, strong consumer demand for housing, combined with limited existing inventory, has buoyed homebuilder confidence.
The most number of new homes sold were within the $300,000 to $399,999 price category, followed evenly by homes within $400,000 to $499,999 and $500,000 to $749,000 ranges.
“In November 2020, 33 percent of new-home sales were priced below $300,000,” First American Deputy Chief Economist Odeta Kushi told National Mortgage Professional magazine. “A year later, in November 2021, only 14 percent of new-home sales were priced below $300,000.”
When compared to homes sold in 2020, which were completed, the sales transactions this year were mostly for “under construction” homes, said Kushi.
“The share of completed homes/ready-to-occupy inventory in November was 9.7 percent, down from 14.5 percent one year ago. While the share of new-home inventory that is not started increased from 22 percent to 27 percent,” Kushi said to the media outlet.
Backlogs have grown the most since May, with 221,000 homes sold in the past month still waiting for construction to get started. Only 164,000 homes were completed, the lowest in three months.
According to the Census Bureau, the Southern regions of the country registered the highest number of sales in November for new privately-owned family homes with 412,000 (523,000 in 2020), followed by West with 242,000 (212,000), then Midwest with 53,000 (96,000), and finally, the North-East with 37,000 (34,000).
With mortgage rates set to go up in 2022, home buyers will be less enthusiastic about purchasing property. Price decreases have lagged behind sales by about six months when it comes to home sales. When demand declines, prices are expected to fall, but an overall correction will depend on the cost of raw materials, labor availability, and alternate options like existing homes.