New Home Sales at 616,000 Annual Rate in December; Previous 3 Months Revised Down Sharply

Annual Sales down 16.4% in 2022

The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 616 thousand.

The previous three months were revised down sharply.

Sales of new single‐family houses in December 2022 were at a seasonally adjusted annual rate of 616,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.3 percent above the revised November rate of 602,000, but is 26.6 percent below the December 2021 estimate of 839,000.

An estimated 644,000 new homes were sold in 2022. This is 16.4 percent below the 2021 figure of 771,000.
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 below pre-pandemic levels. The second graph shows New Home Months of Supply.

The months of supply decreased in December to 9.0 months from 9.2 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 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 December was 461,000. This represents a supply of 9.0 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 (red) - at 71 thousand - is more than double the record low of 32 thousand in 2021 and early 2022. This is getting close to the normal level of completed homes for sale and increasing.

The inventory of homes under construction (blue) at 291 thousand is very high, and about 8% below the cycle peak in July 2022. The inventory of homes not started is at 99 thousand - just below the record peak.

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

In December 2022 (red column), 47 thousand new homes were sold (NSA). Last year, 61 thousand homes were sold in November. 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 2021 and 2022 by month (Seasonally Adjusted Annual Rate). Sales in December 2022 were down 26.5% from December 2021. In 2022, an estimated 644,000 new homes were sold, down 16.4% from 771,000 in 2021.

Almost Six Months of Unsold 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 1.4 months of completed supply (red line). This is close to the normal level.

The inventory of new homes under construction is at 5.7 months (blue line). This elevated level of homes under construction is due to supply chain constraints.

And about 1.9 months of potential inventory have not been started (grey line) - about 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

And on prices, from the Census Bureau:

The median sales price of new houses sold in December 2022 was $442,100. The average sales price was $528,400.

The following graph shows the median and average new home prices. The average price in December 2022 was $528,400 up 8% year-over-year.  The median price was $442,100 up 8% year-over-year.   This suggests a slowdown in price increases, although both the median and the average are impacted by the mix of homes sold.

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

About 11% of new homes sold were under $300K in December 2022.   This is down from around 80% in 2002.  In general, the under $300K bracket is going away (inflation has pushed prices higher).   

In December, we saw an increase in the percent sales in the under $500K range (to 62%), and a decrease in percent sales above $500K (to 38%).

Conclusion

As previously discussed, the Census Bureau overestimates sales, and underestimates inventory when cancellation rates are rising, see: New Home Sales and Cancellations: Net vs Gross Sales. So, take the headline sales number with a large grain of salt - the actual negative impact on the homebuilders is far greater than the headline number suggests!

This will reverse when cancellation rates start declining. When a previously cancelled home is resold, the home builder counts it as a sale, but the Census Bureau does not (since it was already counted).

There are a large number of homes under construction, and this suggests we will see a further sharp increase in completed inventory over the next several months - and that will keep pressure on new home prices.