Pace of Sales Cool in June

Rising mortgage rates and elevated construction costs put a damper on new home sales last month. The U.S. Department of Housing and Urban Development and the U.S. Census Bureau estimated sales of newly built, single-family homes in June at a 697,000 seasonally adjusted annual pace, which is a 2.5% decline over a downwardly revised reading of 715,000 in May. However, new home sales are up 23.8% from a year ago.

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the June reading of 697,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory increased 2.8% in June and remained elevated at a 7.4 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. Total new home inventory peaked in October at 466,000 and has been declining since that time, with a total inventory of 432,000 available for sale in June.

A year ago, there were just 35,000 completed, ready-to-occupy homes available for sale (not seasonally adjusted). By June 2023, that number increased 91.4% to 67,000, reflecting flagging demand and more standing inventory due to lower sales. Completed, ready-to-occupy inventory, however, remains just 15% of total inventory and homes under construction account for 60% of the inventory. Homes that have not started construction when the sales contract is signed account for 25% of new homes sold in June.

The median new home sale price fell 0.5% in June to $415,400 and is down 4.0% compared to a year ago. Stability in building material costs, especially lumber prices, have contributed to a fall in home prices. In terms of affordability, the share of entry-level homes priced below $300,000 has been steadily falling in recent years. Only 12% of the homes were priced in this entry-level affordable range while 33% of the homes were priced above $500,000. The majority of homes (53%) were priced between $300,000-$500,000.

Regionally, on a year-to-date basis, new home sales are up 4.7% in the Northeast and 3.2% in the South. New home sales are down 7.6% in the Midwest and 16.5% in the affordability-challenged West.