New Home Sales Fall in August

Contracts for new single-family home sales declined 3.4% in August to a 560,000 seasonally adjusted annual rate, according to estimates from the joint data release of HUD and the Census Bureau. This was the second month of decline for the pace of new home sales and the weakest rate since December of last year.

The three-month moving average of new home sales also weakened to 585,000, the lowest since January of this year. Despite the recent soft numbers, on a year-to-date basis new home sales volume for 2017 is 7.5% higher than this time last year. It is worth noting there is wide regional variation with this measure, with the Northeast up 25% and the South up 4%.

Sales were strong early in 2017, while the past few months have brought sales volume below forecast. Moreover, we expect sales to show impacts from Hurricanes Harvey and Irma in future months. The Census Bureau reports that areas affected by disaster declarations represent approximately 14% of single-family construction.

Inventory growth continued in August, rising to 284,000 homes. The current months’ supply stands at 6.1, the highest since July 2014.

Census inventory estimates show a growing share of homes listed for sale that have not begun construction. On a year-over-year not seasonally adjusted basis, homes under construction in inventory have increased by 17% over the last year. Completed, ready-to-occupy homes (there are only 62,000) are up 7% since August 2016. In contrast, homes not-yet-started listed in inventory have increased 43%, from 40,000 in August of 2016 to 57,000 last month.

Pricing and affordability are market concerns even as housing demand remains solid. Median new home sales price (price of the home in the middle of the distribution) stands at $300,200, just slightly higher than a year ago. Average home price stands at $368,100. New homes will need to be competitively priced, even as inventory for existing homes remains weak. For this reason, we continue to expect a broadening of the new home inventory base and slight declines in median new home size.

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