New Home Sales Decrease Sharply, Record Months of Unsold Inventory Under Construction

New Home Sales Decrease to 590,000 Annual Rate in June

The Census Bureau reports New Home Sales in June were at a seasonally adjusted annual rate (SAAR) of 590 thousand.

The previous three months were revised down significantly.

Sales of new single‐family houses in June 2022 were at a seasonally adjusted annual rate of 590,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.1 percent below the revised May rate of 642,000 and is 17.4 percent below the June 2021 estimate of 714,000.
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 increased in June to 9.3 months from 8.4 months in May.

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 June was 457,000. This represents a supply of 9.3 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 41 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 but starting to increase.

The inventory of homes under construction at 306 thousand is very high, and about 9% below the record set in 2006. The inventory of homes not started is at a record 110 thousand.

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

In June 2022 (red column), 49 thousand new homes were sold (NSA). Last year, 61 thousand homes were sold in June. The all-time high for June was 115 thousand in 2005, and the all-time low for June was 28 thousand in 2010 and in 2011.

The next graph shows new home sales for 2021 and 2022 by month (Seasonally Adjusted Annual Rate). Sales in June 2022 were down 17.4% from June 2021. Year-to-date, new home sales are down 13.4% compared to the same period in 2021.

Over 6 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 just over 0.83 months of completed supply (red line). This is about two-thirds of the normal level.

The inventory of new homes under construction is at 6.22 months (blue line) - well above the normal level. This elevated level of homes under construction is due to supply chain constraints. This is the all-time record; above the previous record set in 1980.

And a record 110 thousand homes have not been started - about 2.24 months of supply (grey line) - more than 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 June 2022 was $402,400. The average sales price was $456,800.

The following graph shows the median and average new home prices. The average price in June 2022 was $456,800 up 6% year-over-year.  The median price was $402,400 up 7% 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.

There was a shift to lower priced home in June. About 12% of new homes sold were under $300K in June 2022.  This is down from around 80% in 2002, but up from 9% in April.  In general, the under $300K bracket is going away (inflation has pushed prices higher).   

In June, we saw an increase in sales in the $300K to $500K range. This increased from 53% of homes in May to 57% of homes in June.

Conclusion

The good news - for the home builders - is there are few completed homes for sale (unlike during the bubble). However, there are a large number of homes under construction (over 6 months of inventory under construction at the June sales rate).

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.