New Home Sales Decreased in September; Completed Inventory Increased
New Home Sales Decrease to 603,000 Annual Rate in September
The Census Bureau reports New Home Sales in September were at a seasonally adjusted annual rate (SAAR) of 603 thousand.
The previous three months were revised down, combined.
Sales of new single‐family houses in September 2022 were at a seasonally adjusted annual rate of 603,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.9 percent below the revised August rate of 677,000 and is 17.6 percent below the September 2021 estimate of 732,000.
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 September to 9.2 months from 8.1 months in August. 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 September was 462,000. This represents a supply of 9.2 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 56 thousand - is up from the record low of 32 thousand in 2021 and early 2022. This is about two-thirds the normal level of completed homes for sale and increasing.
The inventory of homes under construction (blue) at 301 thousand is very high, and about 11% below the record set in 2006. 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 September 2022 (red column), 49 thousand new homes were sold (NSA). Last year, 58 thousand homes were sold in September. The all-time high for September was 99 thousand in 2005, and the all-time low for September was 24 thousand in 2011.
The next graph shows new home sales for 2021 and 2022 by month (Seasonally Adjusted Annual Rate). Sales in September 2022 were down 17.6% from September 2021. Year-to-date, new home sales are down 14.3% compared to the same period in 2021.
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 1.1 months of completed supply (red line). This is about two-thirds of the normal level.
The inventory of new homes under construction is at 6.0 months (blue line). This elevated level of homes under construction is due to supply chain constraints.
And a record 105 thousand homes have not been started - about 2.1 months of supply (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 September 2022 was $470,600. The average sales price was $517,700.
The following graph shows the median and average new home prices. The average price in September 2022 was $517,700 up 14% year-over-year. The median price was $470,600 up 10% 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 6% of new homes sold were under $300K in September 2022. This is down from around 80% in 2002. In general, the under $300K bracket is going away (inflation has pushed prices higher).
In September, we saw a decrease in the percent sales in the under $500K range (to 58%), and an increase in percent sales above $500K (to 42%).
Conclusion
First, as I discussed last month, 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 greater than the headline number suggests!
For example, on increasing cancellation rates, Zacks Equity Strategist tweeted yesterday on the Pulte conference call:
There are a large number of homes under construction, and this suggests we will see a sharp increase in completed inventory over the next several months - and that will put pressure on new home prices.
With mortgage rates above 7% in October, we will also see a further decline in new home sales.