Median New Home Price is Down 13% from the Peak

CALCULATEDRISK

By Bill McBride

The Census Bureau reports New Home Sales in August were at a seasonally adjusted annual rate (SAAR) of 675 thousand. The previous three months were revised up, combined.

Sales of new single‐family houses in August 2023 were at a seasonally adjusted annual rate of 675,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.7 percent below the revised July rate of 739,000, but is 5.8 percent above the August 2022 estimate of 638,000.
emphasis added

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

New home sales are close to pre-pandemic levels. The second graph shows New Home Months of Supply.

The months of supply increased in August to 7.8 months from 7.0 months in July. The all-time record high was 12.2 months of supply in January 2009. The all-time record low was 3.3 months in August 2020. This is above the top of the normal range (about 4 to 6 months of supply is normal).

“The seasonally‐adjusted estimate of new houses for sale at the end of August was 436,000. This represents a supply of 7.8 months at the current sales rate.”

On inventory, according to the Census Bureau:

“A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted.”

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed. The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale (red) – at 76 thousand – is more than double the record low of 32 thousand in 2021 and early 2022. This is getting close to the normal level of completed homes for sale.

The inventory of homes under construction (blue) at 254 thousand is very high, and about 20% below the cycle peak in July 2022. The inventory of homes not started is at 106 thousand – this is the all-time high.

The fourth graph shows existing home sales for each month, Not Seasonally Adjusted (NSA), for a few selected periods. Black is the maximum sales per month during the bubble (2005) and light gray is the minimum sales during the bust (2008 – 2011). The most recent five years are shown (2019 through 2023).

In August 2023 (red column), 54 thousand new homes were sold (NSA). Last year, 51 thousand homes were sold in July. The all-time high for August was 110 thousand in 2005, and the all-time low for June was 23 thousand in 2010.

The next graph shows new home sales for 2022 and 2023 by month (Seasonally Adjusted Annual Rate). Sales in August 2023 were up 5.8% from August 2022. Year-to-date sales are up 1.8% compared to the same period in 2022.

As expected, new home sales were up year-over-year in August, and it is fairly certain there will be more sales in 2023 than in 2022 – although 7%+ mortgage rates will likely slow sales.

4.5 Months of Unsold Inventory Under Construction

The next graph shows the months of supply by stage of construction. “Months of supply” is inventory at each stage, divided by the sales rate.

There are 1.4 months of completed supply (red line). This is close to the normal level.

The inventory of new homes under construction is at 4.5 months (blue line). This has declined from 7 months in July 2022, but is still a large number of homes under construction.

And about 1.9 months of potential inventory that have not been started (grey line) – about double the normal level. Homebuilders are probably waiting to start some homes until they have a firmer grasp on prices and demand.

Median Prices 13.4% Down from Peak

And on prices, from the Census Bureau:

The median sales price of new houses sold in August 2023 was $430,300.  The average sales price was $514,000. 

The following graph shows the median and average new home prices. The average price in August 2023 was $514,000 down 3% year-over-year.  The median price was $430,300 down 3% year-over-year.   Both the median and the average are impacted by the mix of homes sold.

The median price was down 13% from the peak in 2022, and the average prices was down 10% from the peak.

The last graph shows the percent of new homes sold by price.

About 15% of new homes sold were under $300K in August 2023.   This is up from 2022, but down from around 80% in 2002.  In general, the under $300K bracket is going away (inflation has pushed prices higher).   

In August, 61% of sales were under $500K and 39% over $500K. The percent over $500K is down from 49% at the peak in 2022.

Conclusion

Sales were below expectations; however, the three previous months were revised up, combined. New home sales are close to pre-pandemic levels.

With little existing home inventory, it seems likely that new home sales bottomed in mid-2022, and will be up year-over-year in 2023, even with mortgage rates above 7%.