May New Home Sales Increase, Over 5 Months of Inventory Under Construction

New Home Sales Increase to 696,000 Annual Rate in May

The Census Bureau reports New Home Sales in May were at a seasonally adjusted annual rate (SAAR) of 696 thousand.

The previous three months were revised up, combined.

Sales of new single‐family houses in May 2022 were at a seasonally adjusted annual rate of 696,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.7 percent above the revised April rate of 629,000, but is 5.9 percent below the May 2021 estimate of 740,000.
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 at pre-pandemic levels.

The second graph shows New Home Months of Supply.

The months of supply decreased in May to 7.7 months from 8.3 months in April.

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 well 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 May was 444,000. This represents a supply of 7.7 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 37 thousand - is up from the record low of 32 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 292 thousand is very high, and about 10% below the record set in 2006. The inventory of homes not started is at a record 115 thousand.

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

In May 2022 (red column), 63 thousand new homes were sold (NSA). Last year, 65 thousand homes were sold in May. There was one extra selling day this year in May.

The all-time high for May was 120 thousand in 2005, and the all-time low for May was 26 thousand in 2010.

The next graph shows new home sales for 2021 and 2022 by month (Seasonally Adjusted Annual Rate). Sales in May 2022 were down 5.9% from May 2021.

Over 5 Months of Inventory Under Construction

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.

There are just over 0.68 months of completed supply (red line). This is about half the normal level.

The inventory of new homes under construction is at 5.0 months (blue line) - well above the normal level. This elevated level of homes under construction is due to supply chain constraints. This is close to the record set in 1980.

And a record 115 thousand homes have not been started - about 2.0 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 and demand.

New Home Prices in January

And on prices, from the Census Bureau:

The median sales price of new houses sold in May 2022 was $449,000. The average sales price was $511,400. 

The following graph shows the median and average new home prices. The average price in May 2022 was $511,400 up 15% year-over-year.  The median price was $449,000 up 15% year-over-year.   This might suggest a slowdown in price increases.

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

Only 9% of new homes sold were under $300K in May 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 May 2022, 37% were over $500K.

Conclusion

The good news - for the home builders - is there are very few completed homes for sale (unlike during the bubble). However, there are a large number of homes under construction (over 5 months of inventory under construction at the May sales rate).

As I noted yesterday, during periods of rising cancellations, the Census Bureau tends to overestimate new home sales - so the actual negative impact on the homebuilders is greater than the headline number suggests.