Record building material prices and a continued labor shortage pushed new home sales down in April to a seasonally adjusted annual rate of 863,000 – about 5.9% below the revised March rate, according to a joint analysis of United States Census Bureau and the Department of Housing and Urban Development.
As home builders grapple with supply constraints, demand remains unfulfilled. April’s new home sales are almost double the April 2020 estimate of 582,000.
“The volume of new home sales remains well above pre-pandemic levels, but it has become very clear that the high and volatile price of lumber and other key building materials introduces challenges to the construction process and new home sales, ”said Matthew Speakman, economist at Zillow.
In order to account for uncertain prices and material availability, home builders delay making homes available until they are further along in the construction process. This is not due to a lack of demand; quite the contrary, noted Speakman. Homes are selling about as fast as ever, and many builders say sales could be higher if material constraints weren’t there.
“There were 683,000 new homes sold in 2019, and the current pace of sales is on track to exceed that number this year, even despite the most recent slowdown,” Speakman said. “With homebuyer’s demand unlikely to weaken, it looks like the home construction industry needs to start operating at a lower capacity – with builders cutting back on construction and increasing the time between permit and completion. “
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As total sales plummeted over the month, homes sold but not yet started jumped 16.5% to their highest level since 2006. Likewise, as homes for sale at the end of the month jumped. increased 3.9%, the rise was driven almost entirely by homes where construction had yet to begin, said Doug Duncan, chief economist at Fannie Mae.
“This growing construction backlog, combined with another sharp increase in the median home selling price (up 20% from a year earlier), suggests to us that demand for new homes remains strong but builders have hard to keep up, ”Duncan said.
The seasonally adjusted estimate of new homes for sale at the end of April was 316,000 – a 4.4 month supply at the current sales rate.
While macro factors are likely weighing on activity to some extent, sales volume remains high – and might find another tool if / when recent material price volatility cools down a bit. However, there is no time frame for the costs to simmer. Home prices rose for the 10th consecutive month in March and are 13.2% higher year over year, according to the most recent S&P CoreLogic Case-Shiller Home Price Index Report. The median selling price in April 2021 was $ 372,400, but the average selling price was $ 435,400.
Despite this price increase, underlying demand for owner-occupied homes remains strong, and with a record shortage of existing homes for sale, potential buyers are turning to new homes.
“The volume of new home sales will increase over the remainder of the year will largely depend on the extent to which home builders can increase production,” said Nationwide Chief Economist David Berson. “With lot and labor shortages likely to be in place for some time, however, stronger sales may be limited. Despite this, we forecast an upward trend in new home sales for the remainder of 2021, with sales for the year at their highest level since 2006. ”