New Home Sales at 640,000 Annual Rate in February

New Home Average Prices Down 4.5% Year-over-year

The Census Bureau reports New Home Sales in February were at a seasonally adjusted annual rate (SAAR) of 640 thousand.

The previous three months were revised down.

Sales of new single‐family houses in February 2023 were at a seasonally adjusted annual rate of 640,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 1.1 percent above the revised January rate of 633,000, but is 19.0 percent below the February 2022 estimate of 790,000.
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 close to pre-pandemic levels. The second graph shows New Home Months of Supply.

The months of supply decreased in February to 8.2 months from 8.3 months in January. The all-time record high was 12.2 months of supply in January 2009. The all-time record low was 3.3 months in August 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 February was 436,000. This represents a supply of 8.2 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 72 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 269 thousand is very high, and about 15% below the cycle peak in July 2022. The inventory of homes not started is at 95 thousand - below the record peak of 102 thousand.

The fourth graph shows existing home sales for each month, Not Seasonally Adjusted (NSA), for a few selected periods. Black is the maximum sales per month during the bubble (2005) and light gray is the minimum sales during the bust (2008 - 2011). The most recent five years are shown (2019 through 2023).

In February 2023 (red column), 59 thousand new homes were sold (NSA). Last year, 71 thousand homes were sold in January. 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 2022 and 2023 by month (Seasonally Adjusted Annual Rate). Sales in February 2023 were down 19.0% from February 2022.

Five 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 1.35 months of completed supply (red line). This is close to the normal level.

The inventory of new homes under construction is at 5.0 months (blue line). This elevated level of homes under construction is due to supply chain constraints.

And about 1.8 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 Average Prices Down 4.5% Year-over-year

And on prices, from the Census Bureau:

The median sales price of new houses sold in February 2023 was $438,200. The average sales price was $498,700.

The following graph shows the median and average new home prices. The average price in February 2023 was $498,700 down 4.5% year-over-year.  The median price was $438,200 up 2.5% year-over-year.   This suggests a year-over-year decrease in prices, 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 12% of new homes sold were under $300K in February 2023.   This is up from recent months, but down from around 80% in 2002.  In general, the under $300K bracket is going away (inflation has pushed prices higher).   

In February, 59% of sales were under $500K and 41% over $500K. The percent over $500K is down from just under 50% at the peak in 2022.

Conclusion

This was for contracts signed in February when mortgage rates were lower - and builders were buying down rates. Mortgage rates increased again at the end of February, and that will likely impact sales in March.

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. This might be reversing now since cancellation rates have started to decline. 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 increase in completed inventory over the next several months - and that will keep pressure on new home prices.