Both new-home buying and new-home prices soared in September, with sales reaching their highest level in six months and the median price of a new home hitting a record high.
New-home sales, according to the U.S. Census Bureau and the Department of Housing and Urban Development, hit a seasonally adjusted annual rate of 800,000, up 14% from August. While September’s sales figure is down 17.6% from the sizzling 971,000-unit pace of September 2020, it’s still the strongest rate of purchase since March, and new-home buying activity appears to be on the upswing with rates projected to trend upward.
“Limited existing inventory and low interest rates are keeping demand strong, and more potential buyers may be coming off the fence as they expect interest rates to rise in the future,” said Chuck Fowke, chairman of the National Association of Home Builders (NAHB).
According to Wells Fargo analysts, the surge in new-home sales may be “the first sign that the many constraints currently affecting builders may be starting to ease.” In commentary released by the bank, economists Mark Vitner, Charlie Dougherty and Nicole Cervi noted that lumber, which accounts for a substantial portion of new-home construction costs, has seen prices come down significantly since they peaked in the spring. The moderation of builders’ supply-side woes would be a big boon to inventory, with the number of new homes for sale flat at 379,000 in November. That’s the highest level since 2008, though most of the increase in new-home inventory over the past few months has been in homes that either are still under construction or haven’t been started altogether.
In the meantime, material input issues are still pushing prices upward, with September’s median price of $408,000 setting a new record peak.
“Solid demand and ongoing building material supply bottlenecks continue to put upward pressure on new home prices,” said Jing Fu, senior economist at the NAHB. “Median new home sale prices are up 18.7% on a year-over-year basis. At the same time, only 21% of current sales are below $300,000, compared to a 35% pace a year ago.”
Wells Fargo did note, however, that the 18.7% annual price gain in September may be another indicator that construction supply shortages are cooling. That year-over-year price increase is markedly below the 23.3% annual gain from the previous month, implying that builders may be under less pressure to pass on the rising costs caused by shortages and delays to the consumer through higher prices.