December New Home Sales: Inventory of homes under construction highest since 2007

New Home Sales increase to 811,000 Annual Rate in December; Sales down 7.3% in 2021

The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 744 thousand.

The previous three months were revised down, combined.

Sales of new single‐family houses in December 2021 were at a seasonally adjusted annual rate of 811,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.9 percent above the revised November rate of 725,000, but is 14.0 percent below the December 2020 estimate of 943,000.

An estimated 762,000 new homes were sold in 2021. This is 7.3 percent below the 2020 figure of 822,000.
emphasis added

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

New home sales are now declining year-over-year since sales soared following the first few months of the pandemic.

The second graph shows New Home Months of Supply.

The months of supply decreased in December to 6.0 months from 6.6 months in November.

The all-time record high was 12.1 months of supply in January 2009. The all-time record low was 3.5 months, most recently in October 2020.

This is at the top of the normal range (about 4 to 6 months of supply is normal).

"The seasonally‐adjusted estimate of new houses for sale at the end of December was 403,000. This represents a supply of 6.0 months at the current sales rate."

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale - at 39 thousand - is up from the record low of 33 thousand earlier in 2021. This is about half the normal level of completed homes for sale.

The inventory of homes under construction at 263 thousand, is the highest since 2007.

The fourth graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In December 2021 (red column), 57 thousand new homes were sold (NSA). Last year, 61 thousand homes were sold in December.

The all-time high for December was 87 thousand in 2005, and the all-time low for December was 23 thousand in 2010.

The next graph shows new home sales for 2020 and 2021 by month (Seasonally Adjusted Annual Rate). Sales in 2021 (762 thousand) were 7.3% below sales in 2020 (822 thousand).

The year-over-year comparisons were easy in the first half of 2021 - especially in March and April. However, sales will be down year-over-year again in January since the sales were delayed in 2020 - and sales in the winter were strong.

101 thousand Homes Have Not Been Started

The next graph shows the months of supply by stage of construction. “Months of supply” is inventory at each stage, divided by the sales rate.

The inventory of completed homes for sale was at 39 thousand in December, up from the record low of 33 thousand in March, April, May and July 2021. That is about 0.6 months of completed supply (red line). This is about half the normal level.

The inventory of new homes under construction is at 3.9 months (blue line) - well above the normal level. This elevated level of homes under construction is due to supply chain constraints.

And 101 thousand homes have not been started - about 1.5 months of supply (grey line) - almost double the normal level. Homebuilders are probably waiting to start some homes until they have a firmer grasp on prices.

New Home Prices in December

And on prices, from the Census Bureau:

The median sales price of new houses sold in December 2021 was $377,700. The average sales price was $457,300. 

The following graph shows the median and average new home prices. Prices dipped in December (from November). This could be due to changing mix or just noise. Overall home prices are up sharply year-over-year.

During the housing bust, the builders had to build smaller and less expensive homes to compete with all the distressed sales.  When housing started to recovery - with limited finished lots in recovering areas - builders moved to higher price points to maximize profits.

Then the average and median house prices mostly moved sideways since 2017 due to home builders offering more lower priced homes.  Prices really picked up during the pandemic.

The average price in December 2021 was $457,300 up 14% year-over-year.  The median price was $377,700, up 3% year-over-year.  

The last graph shows the percent of new homes sold by price.

Essentially no new homes sold were under $200K in December 2021.  This is down from 56% in 2002.  In general, the under $200K bracket is going away.   

There has been a sharp increase in the percent of homes over $400K since the beginning of the pandemic.  

About half of new homes (about 53% in December) in the U.S., are in the $200K to $400K range.  The fastest growing price segments over the last 2 years have been the $400K plus ranges (about 46% of new homes are now over $400K).

Conclusion

Although new home sales were down year-over-year in 2021, a key reason was builders limited sales, and delayed starts, due to supply chain constraints and uncertain costs. This is also why there are a near record number of homes “not started” and the most homes under construction since 2007. Builders are still reporting strong demand.

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