New Home Sales Increase to 683,000 Annual Rate in March

Likely New Home Sales will be up YoY in Mid-2023

The Census Bureau reports New Home Sales in March were at a seasonally adjusted annual rate (SAAR) of 683 thousand.

The previous three months were revised down slightly, combined.

Sales of new single‐family houses in March 2023 were at a seasonally adjusted annual rate of 683,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 9.6 percent above the revised February rate of 623,000, but is 3.4 percent below the March 2022 estimate of 707,000.
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 March to 7.6 months from 8.4 months in February. 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 March was 432,000. This represents a supply of 7.6 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 267 thousand is very high, and about 16% below the cycle peak in July 2022. The inventory of homes not started is at 94 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 March 2023 (red column), 66 thousand new homes were sold (NSA). Last year, 68 thousand homes were sold in March. The all-time high for March was 127 thousand in 2005, and the all-time low for March was 28 thousand in 2011.

The next graph shows new home sales for 2022 and 2023 by month (Seasonally Adjusted Annual Rate). Sales in March 2023 were down 3.4% from March 2022.

It seems likely that new home sales will be up year-over-year sometime in the next few months.

Almost 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 1.25 months of completed supply (red line). This is close to the normal level.

The inventory of new homes under construction is at 4.7 months (blue line). This elevated level of homes under construction is due to supply chain constraints.

And about 1.7 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 March 2023 was $449,800. The average sales price was $562,400.

The following graph shows the median and average new home prices. The average price in March 2023 was $562,400 up 9.9% year-over-year.  The median price was $449,800 up 3.2% year-over-year.   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 March 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 March, 62% of sales were under $500K and 38% over $500K. The percent over $500K is down from just under 50% at the peak in 2022.

Conclusion

Sales were well above expectations, likely due to the dearth of existing home inventory, and that builders are buying down mortgage rates. It seems likely that new home sales bottomed in mid-2022.

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 has reversed 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 still a large number of homes under construction, and this suggests we might see a further increase in completed inventory over the next several months, but in general, this is a positive report for new home sales.