New home sales dropped in August for the second consecutive month, however so did home prices, indicating that perhaps the demand for new homes is beginning to level with the number of homes available for sale.
Sales of new single-family houses in August decreased to a seasonally adjusted annual rate of 560,000, a new low for 2017, according to the newly released joint report from the U.S. Census Bureau and The Department of Housing and Urban Development. This is a decrease of 3.4% from July’s 580,000 sales and 1.2% from 567,000 sales in August last year.
“New home sales in August disappointed expectations for an increase, and instead declined 3.4% month-over-month to 560,000 units SAAR, a 2017 low,” said Lee Stafford, Ally Financial managing director of economics and research. “However, we don’t see this as cause for alarm yet; despite the decline in August, year-to-date new home sales SAAR were 7% higher than 2016’s full-year sales of 561,000.”
The median prices of new homes sold plummeted from $313,700 in July to $300,200 in August. The average sales price came in at $368,100.
One expert pointed out that while home prices dropped for new homes, overall the latest Case-Shiller report shows home prices continue to increase.
“Despite a relatively healthy supply of new homes for sale, sales surprised on the downside in August, falling by 3.4% month-over-month,” Capital Economics Property Economist Matthew Pointon wrote in an analysis.
“But even with home sales falling, overall conditions in the housing market are still very tight,” Pointon. “That is helping to drive house prices higher, with Case-Shiller reporting a 5.9% annual gain in July, a three-year high.”
The drop in home prices could be due to lower demand for new homes, and uptick in housing inventory, or a combination of both. The seasonally adjusted estimate of new homes for sale at the end of August came in at 284,000, up from 272,000 the month before.
This increase now represents a supply of 6.1 months at the current sales rate. Six months is typically considered to be the equilibrium where it is neither a buyer’s nor a seller’s market. Of course, this uptick in new homes for sale does not bring the entire housing market to equilibrium, but rather, helps make up for the lack of existing homes for sale.
But not everyone saw the report as good news.
“New home sales ended the summer on a very weak note, and it’s time we stopped sugarcoating the truth with this data — the simple fact is that we are severely under-producing housing in this country, relative both to basic demographics and currently high demand from buyers,” Zillow Chief Economist Svenja Gudell said. “Inventory is stuck at roughly mid-1990s levels, but the country has grown by more than 60 million people since then.”
“Buying conditions, in theory, are great right now: Jobs and incomes are growing, and rock-bottom mortgage interest rates are helping keep financing costs low,” Gudell said. “What’s missing from the equation is a lack of homes actually available to buy at a price point that’s reasonable for most buyers, even with today’s bump in inventory.”