New Home Sales: Record 110 thousand homes have not been started

New Home Prices Are Up 20% Year-over-year

New Home Sales at 744,000 Annual Rate in November

The Census Bureau reports New Home Sales in November were at a seasonally adjusted annual rate (SAAR) of 744 thousand.

The previous three months were revised down significantly.

Sales of new single‐family houses in November 2021 were at a seasonally adjusted annual rate of 744,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.4 percent above the revised October rate of 662,000, but is 14.0 percent below the November 2020 estimate of 865,000.
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 declining year-over-year since sales soared following the first few months of the pandemic.

The second graph shows New Home Months of Supply.

The months of supply decreased in November to 6.5 months from 7.1 months in October.

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 above 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 November was 402,000. This represents a supply of 6.5 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 39 thousand - is up from the record low of 33 thousand earlier this year. This is about half the normal level of completed homes for sale.

The inventory of homes under construction at 253 thousand, is the highest since 2007.

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

In November 2021 (red column), 53 thousand new homes were sold (NSA). Last year, 61 thousand homes were sold in November.

The all-time high for November was 86 thousand in 2005, and the all-time low for November was 20 thousand in 2010.

The next graph shows new home sales for 2020 and 2021 by month (Seasonally Adjusted Annual Rate). Sales, year to date in 2021, are 6.5% below sales in 2020, and new home sales in 2021 will finish solidly below sales in 2020 - since sales in 2020 finished strong.

The year-over-year comparisons were easy in the first half of 2021 - especially in March and April. However, sales will be down year-over-year again in December - since the selling season was delayed in 2020.

Record 110 thousand Homes Have Not Been Started

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.

The inventory of completed homes for sale was at 39 thousand in November, up from the record low of 33 thousand in March, April, May and July 2021. That is about 0.6 months of completed supply (red line). This is about half the normal level.

The inventory of new homes under construction is at 4.1 months (blue line) - well above the normal level. This elevated level of homes under construction is due to supply chain constraints.

And a record 110 thousand homes have not been started - about 1.8 months of supply (grey line) - almost double the normal level. Homebuilders are probably waiting to start some homes until they have a firmer grasp on prices.

Prices Are Up Sharply Year-over-year

And on prices, from the Census Bureau:

The median sales price of new houses sold in November 2021 was $416,900.  The average sales price was $481,700. 

The following graph shows the median and average new home prices.

During the housing bust, the builders had to build smaller and less expensive homes to compete with all the distressed sales.  When housing started to recovery - with limited finished lots in recovering areas - builders moved to higher price points to maximize profits.

Then the average and median house prices mostly moved sideways since 2017 due to home builders offering more lower priced homes.  Prices really picked up during the pandemic.

The average price in November 2021 was $481,700 up 22% year-over-year.  The median price was a record $416,900, up 19% year-over-year.  

The last graph shows the percent of new homes sold by price.

For the first time ever, essentially no new homes sold were under $200K in November 2021.  This is down from 56% in 2002.  In general, the under $200K bracket is going away.   

There has been a sharp increase in the percent of homes over $400K since the beginning of the pandemic.  

Under half of new homes (about 44% in November) in the U.S., are in the $200K to $400K range.  The fastest growing price segments over the last 2 years have been the $400K plus ranges (about 56% of new homes are now over $400K - a record percentage).

Conclusion

Although new home sales will be down year-over-year in 2021, a key reason is builders have limited sales, and delayed starts, due to supply chain constraints and uncertain costs. This is also why there are a record number of homes “not started”. Builders are still reporting strong demand.

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