March New Home Sales: Little Completed Inventory, High Number of Homes Under Construction

New Home Sales decrease to 763,000 Annual Rate in March

The Census Bureau reports New Home Sales in March were at a seasonally adjusted annual rate (SAAR) of 763 thousand.

The previous three months were revised up sharply.

Sales of new single‐family houses in March 2022 were at a seasonally adjusted annual rate of 763,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.6 percent below the revised February rate of 835,000 and is 12.6 percent below the March 2021 estimate of 873,000.
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 March to 6.4 months from 5.6 months in February.

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 March was 407,000. This represents a supply of 6.4 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 and early 2022. This is about half the normal level of completed homes for sale.

The inventory of homes under construction at 267 thousand is the highest since 2007. The inventory of homes not started is at a record 105 thousand.

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

In March 2022 (red column), 72 thousand new homes were sold (NSA). Last year, 83 thousand homes were sold in March.

The all-time high for March was 127 thousand in 2005, and the all-time low for March was 28 thousand in 2011.

An interesting tidbit: This was only the second time in recorded history (since 1963) that sales NSA in March were below sales NSA in February for the same year. The first time was in 2020 - and was due to the pandemic impacting sales in March 2020. This decline might be revised away, but this also might be an indication of some slowing in new home sales.

The next graph shows new home sales for 2021 and 2022 by month (Seasonally Adjusted Annual Rate). Sales in March 2022 were down 12.6% from March 2021.

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

105 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 March, up from the record low of 33 thousand in several months in 2021 and early 2022. That is just over 0.5 months of completed supply (red line). This is about half the normal level.

The inventory of new homes under construction is at 4.2 months (blue line) - well above the normal level. This elevated level of homes under construction is due to supply chain constraints.

And 105 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 March 2022 was $436,700.  The average sales price was $523,900. 

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 March 2022 was $523,900 up 26% year-over-year.  The median price was $436,700, up 21% year-over-year.  

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

Only 13% of new homes sold were under $300K in March 2022.  This is down from around 80% in 2002.  In general, the under $300K bracket is going away (inflation has pushed prices higher).   

There has been a sharp increase in the percent of homes over $500K since the beginning of the pandemic.   In early 2020, about 17% of new homes sold were over $500K; in March 2022, almost 39% were over $500K.

Conclusion

There are few signs of a negative impact on new home sales from higher mortgage rates. I expect new home sales to slow, similar to what happened in the 1980 period with rising mortgage rates.

I’ll also be tracking cancellations for the public builders, but any impact probably won’t show up until calendar Q2 results are reported.