New Single-Family Home Sales Rose but So Did Inventory and Months’ Supply
Sales of new single-family homes posted a small gain in August, increasing 1.5 percent to 740,000 at a seasonally-adjusted annual rate from a 729,000 pace in July. Despite the gain, sales are down 24.3 percent from the year-ago level and are 25.5 percent below the 993,000 pace in January (see top of first chart). The declining trend in new home sales has been matched by permits for future construction (see top of first chart).
Sales of new single-family homes were up in three of the four regions of the country in August. Sales in the South, the largest by volume, rose 6.0 percent while sales in the West gained 1.4 percent, and sales in the Northeast gained 26.1 percent. However, sales in the Midwest were off 31.1 percent for the month. From a year ago, sales were down between 16 and 47 percent in the four regions.
The total inventory of new single-family homes for sale rose 3.3 percent to 378,000 in August, the highest level since October 2008 (see bottom of first chart), leaving the months’ supply (inventory times 12 divided by the annual selling rate) at 6.1, up 1.7 percent from July and 74.3 percent above the year-ago level (see bottom of first chart). The median time on the market for a new home fell in August, coming in at 3.6 months versus 4.4 in July.
Recent headwinds for the housing market include somewhat higher mortgage rates and sharply higher home prices. The average rate of a 30-year fixed-rate conforming mortgage was around 2.8 percent in August. The average rate is up from a low of 2.65 in January but lower than the 3.18 percent in April 2021. The average rate was as high as 4.94 in November 2018 (see second chart).
The median sales price of a new single-family home was $390,900 (see second chart), unchanged from July (not seasonally adjusted). The gain from a year ago is 20.1 percent. On a 12-month average basis, the median single-family home price is at a record high (see second chart).
Record-high prices and somewhat higher mortgage rates are forcing some buyers out of the market and contributing to slower sales, rising inventory, and less new construction. However, the recent surge in new Covid cases may provide some continued support for less dense housing. It is likely that these conditions will continue to impact the overall housing market, and on balance, further reduce demand, leading to looser supply conditions and slower future price increases.
Robert Hughes
Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
