Despite yet another increase in homebuilder sentiment, the sales pace of new homes declined month over month in June, according to data published on Wednesday by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).
That more or less lined up with mortgage application data for new builds, which showed demand up 26% year-over-year in June but down 5% from May.
“New home sales continue to be an outsized share of the housing market,” Lisa Sturtevant, Bright MLS’ chief economist, said in a statement. “The market for new homes is booming because the number of existing homes coming on the market has slowed to a two-decade low. It’s a unique housing market, unparalleled in recent years, for the active inventory to be so heavily skewed towards new construction. As a result, it is forcing buyers to make trade-offs, in terms of both characteristics of the home as well as the home’s location.”
At the end of the month, there were 432,000 new homes for sale, up 0.7% from a month prior, but down 3.6% compared to June 2022. At the current sales pace this inventory represents 7.4 months of supply, which is better than the 7.2 months of supply recorded in May, but down 22.1% year over year.
As the sales pace slowed month over month, the median sales price of new homes also dropped in June, falling roughly $2,000 to $415,400. A year ago, the median sales price was $432,700.
“The restricted supply of existing homes is a boon for homebuilders this year, as weary homebuyers find more open doors when walking through new floorplans and neighborhoods,” George Ratiu, the chief economist at Keeping Current Matters, said in a statement. “Builders are also responding to this shift by bringing slightly smaller homes to market in an effort to meet lower price points and extending financing incentives for cash-strapped first-time buyers or rate-locked homeowners looking to trade up. At the same time, builders continue to face higher materials and labor costs, keeping a lid on how much lower they can go with product prices.”
Regionally, the sales pace was up in the Northeast (41,000 homes) and the South (460,000 homes) on a month-over-month basis, with the Northeast recording the larger increase at 20.6%.
The West (143,000 homes) and the Midwest (53,000 homes) fell on a monthly basis, recording decreases of 13.9% and 28.4%, respectively.
On a yearly basis, the Northeast (141.2%), the West (34.9%) and the South (21.4%) recorded increases, while the Midwest (-13.1%) recorded a decline.
“Scanning the new home landscape over the next few months, we can expect continued improvement in supply, especially in markets with the largest number of filed residential permits, such as Houston, Dallas, Atlanta, Charlotte, Austin, and Orlando,” Ratiu said. “These predominantly Southern markets have experienced a major influx of new residents over the past few years, as many Americans have been attracted to strong local economies, warmer weather, affordable housing, and lower cost of living. We can expect affordability to continue being a central driver of demand for new homes.”
In the South, which is the epicenter of homebuilding activity, homebuyers benefit from the incentives homebuilders can offer.
“With inventory of existing homes dwindling, many home shoppers are turning up empty handed. Those buyers who turn to the new construction market are seeing more available options to snatch up, leading to strong new home sales compared to a year ago,” said Zillow Senior Economist Nicole Bachaud. “And with many builders offering incentives like rate buydowns, new construction is an attractive offer for buyers who are seeking affordability. The new construction market will continue to play a vital role in unlocking buyers who are left with few other options as builders continue to churn out much needed inventory into this market.”