New Home Sales, commonly referred to as “new residential sales,” is an economic indicator that tracks the sale of newly constructed residences. It is extensively watched by investors since it is seen as a lagging signal of real estate market demand and, thus, a factor influencing mortgage rates. Household income, unemployment, and interest rates are all variables that influence it.
The United States Census Bureau releases two versions of the New Home Sales metric: a seasonally adjusted figure and an unadjusted one. The adjusted value is shown as a yearly total, whereas the unadjusted figure is presented as a monthly total. These numbers are provided for several areas and the entire nation.
New home sales are completed when a sales contract or deposit is signed or accepted. In any stage of construction, the home might be: not yet started, in the process of being built or fully finished. About 10% of the US housing market is made up of new house sales. Preliminary numbers for new single-family home sales are subject to major changes because they are mostly based on data from construction permits.
New Home Sales Reach 17-Month High in July 2023
The real estate market is in a constant state of flux, influenced by a myriad of factors including supply and demand, mortgage rates, and economic conditions. In a surprising turn of events, new home sales in the United States have soared to a 17-month high in July, defying expectations and providing insight into the preferences of today's homebuyers. This surge is particularly noteworthy considering the challenges posed by an ongoing shortage of existing homes.
A Significant Upward Trend
In a joint report from the US Department of Housing and Urban Development and the Census Bureau, it was revealed that sales of newly constructed homes increased by an impressive 4.4% in July. This brought the seasonally adjusted annual rate to 714,000, up from a revised rate of 684,000 in June. Moreover, these sales figures demonstrated a remarkable year-over-year increase of 31.5%. This trend is highly encouraging for the housing market, but it begs the question: What is propelling this surge in new home sales?
Coping with Low Inventory
The housing market has been grappling with a shortage of available homes for quite some time. The scarcity of existing homes has led many buyers to explore new construction as a viable option. With historically low inventory levels in the existing home market, new homes offer a fresh alternative. However, it's important to note that despite the surge in sales, concerns about affordability persist.
Affordability Concerns Amidst Rising Mortgage Rates
One key factor affecting the real estate market's dynamics is the rise in mortgage rates. While the allure of new homes is enticing, homeowners with mortgage rates of 3% or 4% may be hesitant to sell their current homes and acquire new ones at significantly higher rates. This apprehension is exacerbated by recent mortgage rates exceeding 7%, with little indication of a decrease in the near future. This dynamic creates a complex interplay between buyer demand and affordability, shaping the market's trajectory.
The New Homes Advantage
An interesting facet of this trend is the comparative advantage that new homes seem to hold over existing homes. Despite higher mortgage rates and prices, new home sales appear less competitive due to the lack of inventory in the existing home market. The scarcity of available housing options has allowed new construction to thrive, as buyers seek out fresh floor plans, improved energy efficiency, and warranties that accompany new homes. Kelly Mangold of RCLCO Real Estate Consulting observes, “Household formation continues to outpace new construction which has continued to bolster the market despite the multitude of headwinds.”
Regional Variations and Market Fluctuations
Sales of new homes in July exhibited significant variations across different regions of the United States. While the Midwest experienced a staggering 47.4% surge in sales from the previous month, the West saw a substantial increase of 21.5% in sales. In contrast, the Northeast saw a decline of 2.9%, and the South experienced a more pronounced drop of 6.3%. These regional disparities reflect local price and inventory fluctuations, underscoring the nuanced nature of the real estate market.
The Price Puzzle: New vs. Existing Homes
The pricing dynamics between new and existing homes add another layer of complexity to the market. Although the median price of existing homes increased by 1.6% year-over-year, reaching $412,300 in July, the median price of new homes sold in the same period experienced an 8.6% decrease to $436,700. This intriguing pricing differential raises questions about the considerations that drive buyers to opt for new construction despite the higher affordability hurdles in the broader market.
The Role of Inventory
Inventory is a pivotal factor in understanding the current state of the housing market. At the end of July, approximately 437,000 new homes were available for sale, equating to around 7.3 months of supply at the current sales rate. While this figure pales in comparison to the existing home inventory, which stood at about 1.1 million units in July, it's essential to recognize that new home inventory has been gradually increasing over the past few months. Despite this uptick, the inventory of new homes remains 4.8% lower than the previous year's level.
Incentives and Future Trends
Builders are leveraging the shortage of resale inventory to their advantage. Incentives play a crucial role in enticing buyers to opt for new homes. These incentives can encompass mortgage rate buy-downs, point payments, price reductions, and even upgraded appliances and interior features. The competition between new and existing homes is pushing builders to innovate and cater to the needs of affordability-conscious consumers.
The Path Ahead
As the housing market continues to evolve, the surge in new home sales signals a fascinating shift in buyer preferences amidst challenging market conditions. The interplay between historically low inventory, affordability concerns, and the allure of fresh features underscores the dynamic nature of the real estate landscape. Whether this trend will be sustained or if other factors will come into play remains to be seen. As the market navigates these uncertainties, both buyers and builders will need to adapt to the ever-changing conditions to make the most of the opportunities at hand.
New Home Sales Regional Data July 2o23
| Region | New Homes Sold |
|---|---|
| North-East | 33,000 |
| Mid-West | 84,000 |
| South | 416,000 |
| West | 181,000 |
North-East: 33,000 New Homes Sold
The North-East region of the United States, known for its historical significance and bustling urban centers, witnessed the sale of 33,000 new homes. However, this figure also reflected a decline of 2.9% from the previous month. While the North-East showcases the allure of city living and a rich cultural heritage, it seems to be grappling with unique challenges that have influenced its new home sales figures.
Mid-West: 84,000 New Homes Sold
The Mid-West region, characterized by its diverse landscapes and strong sense of community, experienced a robust surge in new home sales, with a staggering 84,000 units sold. This remarkable increase of 47.4% from the prior month paints a picture of a region where buyers are embracing new construction as an attractive option. The Mid-West's combination of affordability and quality of life appears to be resonating well with prospective homeowners.
South: 416,000 New Homes Sold
The South, with its warm climate, economic opportunities, and diverse cultures, emerged as a dominant player in the new home sales arena. Boasting a whopping 416,000 new homes sold, the South exhibited an increase of 21.5% from the previous month. This surge is a testament to the region's strong demand for housing and the value it places on homeownership. The South's robust economic growth and job opportunities likely contribute to its vibrant real estate market.
West: 181,000 New Homes Sold
The West, known for its stunning natural landscapes and innovation hubs, also showcased a notable increase in new home sales. With 181,000 new homes sold, the region experienced a rise of 21.5% from the prior month. The appeal of the West's modern lifestyle and thriving tech and creative industries may be driving the demand for new homes. However, it's worth noting that despite the increase, the West's sales figures still lag behind those of the South.
Unveiling Insights and Implications
The variations in new home sales across these four regions underscore the importance of local dynamics in shaping the housing market. Several factors contribute to these fluctuations:
- Economic Factors: Economic conditions, including job growth and income levels, can greatly influence housing demand. The South's strong job market and economic opportunities likely contribute to its high sales figures.
- Affordability: Affordability remains a critical factor in housing choices. The Mid-West's affordability compared to other regions could explain its remarkable surge in new home sales.
- Cultural Preferences: Regional cultures and lifestyle preferences play a role in shaping housing choices. The urban appeal of the North-East and the modern lifestyle of the West could impact the demand for new homes.
- Climate and Geography: Climate and geography also play a role in housing preferences. The warm climate of the South could be a driving factor behind its robust sales figures.
New Home Sales Trend [Previous Months]
Here's the region-wise tabular data for new home sales from March 2022 to March 2023. The units displayed are in thousands and are the seasonally adjusted annual rate. The data estimates only include new single-family residential structures. Sales of multi-family units are excluded from these statistics.
NORTHEAST: Connecticut, Maine, Massachusetts New Hampshire New Jersey New York Pennsylvania Rhode Island Vermont
MIDWEST: Illinois, Iowa, Indiana, Kansas, Michigan, Minnesota, Missouri, Nebraska North Dakota Wisconsin South Dakota Ohio
SOUTH: West Virginia, Virginia, Texas, Tennessee, South Carolina, Oklahoma, North Carolina, Mississippi, Maryland, Louisiana, Kentucky, Georgia, Florida, Alabama, Delaware, District of Columbia, Arkansas
WEST: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming
Sources
- https://www.census.gov/
- https://www.census.gov/construction/nrs/pdf/newressales.pdf
- https://www.mortgagenewsdaily.com/data/new-home-sales
- https://www.nahb.org/news-and-economics/housing-economics/national-statistics/new-and-existing-home-sales-reports
