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New home sales dip for third consecutive month

First annual decline since beginning of the COVID-19 pandemic

New home sales continued to slip in June, falling 6.6% from May to a pace of only 676,000, according to a recent study from the U.S. Census.

It’s the third straight month of decreases and the first annual decline since the start of the COVID-19 pandemic.

June’s pace is also 19.4% below June 2020’s pace of nearly 900,000, as the price of new homes in June 2021 rose to approximately 6% above last year’s average price. The median sales price of new houses sold in June 2021 was $361,800. The average sales price was $428,700.

Even with overall inventory issues plaguing the national housing market, availability of new homes hasn’t been as much of an issue due to the aforementioned high prices, noted Chief Economist Danielle Hale.

“As more existing home sellers return to the housing market, builders may have to compete with better-priced existing homes even as they navigate higher costs for the materials and labor needed to build homes,” Hale said. “Builders are working through this uncertainty by managing their pipelines, notably expanding the number of homes for sale that are not yet started.”

That segment of home sales — of homes that have yet to be built — are up a staggering 84% from last year, Hale said.

“And those homes continue to sell quickly once completed — within 3.5 months,” Hale added.

Regionally, the South led the way with a seasonally adjusted pace of 367,000, well ahead of the West (186,000), the Midwest (92,000) and the Northeast (31,000). That pace for the Northeast, specifically, is down 27.9% from May 2021 and down 40.4% from June 2020.

Zillow Economist Matthew Speakman said demand for new homes should remain hot, as home shoppers continue to favor new construction as an alternative to the “ultra-competitive” resale sector.

This demand should offer support for sales volume for the foreseeable future, buying time for these supply-related constraints to slowly ease and allowing for a return to growth in the months that follow,” Speakman said. “Annual comparisons will get even more difficult in coming months, as it was this time last year that the market began to surge and reach highs not seen since before the Great Recession.”

The Mortgage Bankers Association Builder Application Survey data for June 2021 shows mortgage applications for new home purchases decreased 23.8% compared from a year ago. Compared to May 2021, applications decreased by 3%.

MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 704,000 units in June 2021, based on data from the BAS.

By product type, conventional loans were 74.4% of loan applications, FHA loans comprised 14% percent, RHS/USDA loans were 1% and VA loans were 10.6%.

The average loan size of new homes increased from $384,323 in May to $392,370 in June.

“Homebuilders are encountering stronger headwinds of late, as severe price increases for key building materials, rising regulatory costs, and labor shortages impact their ability to raise production. This has dampened new home sales and quickened home-price growth,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Additionally, still-low levels of for-sale inventory are also pushing prices higher as competition for available units remains high among prospective buyers.”

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