Contracts for new, single-family home sales declined in July, falling 1.7% to a 627,000 seasonally adjusted annual rate according to estimates from the joint release of HUD and the Census Bureau. The decline came off an upwardly revised June estimate, which was increased from an initial reading of 631,000 to a new estimate of 638,000. The July estimate was the lowest annual pace since August 2017, a reminder that builders must manage costs as affordability concerns rise. While affordability conditions remain positive and the labor market sees low unemployment, prospective home buyers face increased uncertainties as interest rates trend higher and trade war concerns grow.
Despite the disappointing July estimate, total sales for the first seven months of 2018 (401,000) were 7.2% higher than the comparable total for 2017 (374,000). We expect the volume of new home sales to continue to expand along the current modest pace, subject to monthly volatility and supply-side cost concerns.
Inventory increased in July to 309,000 single-family homes for sale. The current months’ supply stands at a healthy level of 5.9. Given tight existing home inventory, more new homes can be absorbed by the market.
Median new home sales price (price of a home in the middle of the distribution) increased in July to $328,700. Managing rising construction costs in the months ahead will be a key challenge for housing affordability, as input costs increase, although recent declines in lumber prices should help.
For the first seven months of 2018 (and relative to the first seven months of 2017), new home sales were up 14.2% in the Midwest, 8.6% in the South, 6.5% in the West, and down 14.5% in the Northeast, due to some tax reform related effects and affordability.