February New Home Sales: Few Completed Inventory, High Number of Homes Under Construction

New Home Sales decrease to 772,000 Annual Rate in February

The Census Bureau reports New Home Sales in February were at a seasonally adjusted annual rate (SAAR) of 772 thousand.

The previous three months were revised up slightly, combined.

Sales of new single‐family houses in February 2022 were at a seasonally adjusted annual rate of 772,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.0 percent below the revised January rate of 788,000 and is 6.2 percent below the February 2021 estimate of 823,000.
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 increased in February to 6.3 months from 6.1 months in January.

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 above 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 February was 407,000. This represents a supply of 6.3 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 35 thousand - is up from the record low of 33 thousand in 2021. This is about half the normal level of completed homes for sale.

The inventory of homes under construction at 266 thousand is the highest since 2007. The inventory of homes not started is at a record 106 thousand.

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

In February 2022 (red column), 65 thousand new homes were sold (NSA). Last year, 70 thousand homes were sold in February

The all-time high for February was 109 thousand in 2005, and the all-time low for February was 22 thousand in 2011.

The next graph shows new home sales for 2021 and 2022 by month (Seasonally Adjusted Annual Rate). Sales in February 2022 were down 6.2% from February 2021.

The year-over-year comparisons will be easier going forward.

106 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 35 thousand in February, up from the record low of 33 thousand in several months in 2021. That is about 0.5 months of completed supply (red line). This is about half the normal level.

The inventory of new homes under construction is at 4.1 months (blue line) - well above the normal level. This elevated level of homes under construction is due to supply chain constraints.

And 106 thousand homes have not been started - about 1.7 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 January

And on prices, from the Census Bureau:

The median sales price of new houses sold in February 2022 was $400,600. The average sales price was $511,000. 

The following graph shows the median and average new home prices. 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 February 2021 was $511,000 up 25% year-over-year.  The median price was $400,600, up 11% year-over-year.  

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

Essentially no new homes sold were under $200K in February 2022.  This is down from 56% in 2002.  In general, the under $200K bracket is going away (inflation has pushed prices higher).   

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 52% in February) 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 48% of new homes are now over $400K).

Conclusion

Builders are still reporting strong demand; however, supply constraints are still limiting deliveries. It is too early to see how much rising mortgage rates will slow demand.

There are few completed homes for sales, but there is a large number of homes under construction - and there are a record 106 thousand new homes that haven’t been started.

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