Sales of newly built homes occurred at a seasonally-adjusted annual rate of 841,000 in November – 11% below October’s 945,000 revised rate, the Census Bureau reported on Wednesday. Despite a double-digit decline, November’s numbers are still nearly 21% higher than this same period last year.
Every region experienced a dip in new-home sales, with the Midwest providing the starkest decline, down a whopping 43% month-over-month. The West came in second at a 17.3% decline, while the South and Northeast both fell less than 3%.
Construction continued to play catch-up also as Novembers new-home inventory rose nearly 14% to a 4.1-month supply – inching ever closer to the six-month supply sweet spot that suggests a balanced market.
With that in mind, Doug Duncan, Chief Economist at Fannie Mae, said the comparative lack of new homes available for purchase, rather than a significant slowdown in demand, was what primarily drove the new home sales decline.
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“While we will likely revise downward our near-term sales forecast, this also implies that much of our anticipated sales/starts rebalancing has already occurred,” Duncan said. “Prior to the data revision, the month’s supply of homes for sale at the current pace was only 3.3, a record low in the series dating back to 1963, while the share of homes sold-but-not-yet-started was at a level only seen during the housing bubble in 2005.”
With the revision and pullback, Fannie Mae sees sales moving towards a more sustainable direction. However, there are still 43% fewer completed homes for sale in November year-over-year, which according to Zillow economist Matthew Speakman, is seriously limiting the supply of finished homes for many buyers to browse and purchase.
“Eager buyers have been snapping up available new homes, an increasing share of which have not even begun construction, at their highest pace in years. But while competition remains elevated, today’s release does suggest at least in part that some of this recent optimism may have tempered, in part due to slowing economic activity and uncertainty brought upon by rising coronavirus case volumes across the country,” Speakman said.
Given these constraints, Speakman said it was almost inevitable that new home sales figures would slow sometime soon, but the runway is still clear headed into 2021 for growth.
But even with the continuation of heightened demand, affordability is still of some concern. The median sales price for new houses at the end of November was $335,300, over $7000 higher year-over-year.
“Though the market remains strong, the pace of sales pulled back in November as inventory remains low and affordability concerns persist as builders grapple with a shortage of lots, labor and building materials,” said Chuck Fowke, chairman of the National Association of Home Builders.