New Home Sales Increased in August; Completed Inventory Increased
New Home Sales Increased in August; Completed Inventory Increased
New Home Sales Increase to 685,000 Annual Rate in August
The Census Bureau reports New Home Sales in August were at a seasonally adjusted annual rate (SAAR) of 685 thousand.
The previous three months were revised up, combined.
Sales of new single‐family houses in August 2022 were at a seasonally adjusted annual rate of 685,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 28.8 percent above the revised July rate of 532,000, but is 0.1 percent below the August 2021 estimate of 686,000
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 at pre-pandemic levels. The second graph shows New Home Months of Supply.
The months of supply decreased in August to 8.1 months from 10.4 months in July. 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 August was 461,000. This represents a supply of 8.1 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 49 thousand - is up from the record low of 32 thousand in 2021 and early 2022. This is just over half the normal level of completed homes for sale but increasing.
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 106 thousand.
The fourth graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).
In August 2022 (red column), 55 thousand new homes were sold (NSA). Last year, 55 thousand homes were sold in August. The all-time high for August was 110 thousand in 2005, and the all-time low for August was 23 thousand in 2010.
The next graph shows new home sales for 2021 and 2022 by month (Seasonally Adjusted Annual Rate). Sales in August 2022 were down 0.1% from August 2021. Year-to-date, new home sales are down 14.1% compared to the same period in 2021.
Over 5 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 0.86 months of completed supply (red line). This is about 60% of the normal level.
The inventory of new homes under construction is at 5.36 months (blue line). This elevated level of homes under construction is due to supply chain constraints.
And a record 106 thousand homes have not been started - about 1.86 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 August 2022 was $436,800. The average sales price was $521,800.
The following graph shows the median and average new home prices. The average price in August 2022 was $521,800 up 11% year-over-year. The median price was $436,800 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 August 2022, up from 7% in July. This is down from around 80% in 2002. In general, the under $300K bracket is going away (inflation has pushed prices higher).
In August, we saw an increase in the percent sales in the under $500K range, and a decrease in percent sales above $500K.
Conclusion
First, as I discussed yesterday, 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!
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% today, we will see a further decline in new home sales in coming months. (see: Yes, Mortgage Rates Are Now Over 7%, But It's Complicated)