Median New Home Price is Down 13% from the Peak
CALCULATEDRISK
By Bill McBride
The Census Bureau reports New Home Sales in March were at a seasonally adjusted annual rate (SAAR) of 693 thousand. The previous three months were revised down, combined.
March 2024 were at a seasonally adjusted annual rate of 693,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.8 percent above the revised February rate of 637,000 and is 8.3 percent above the March 2023 estimate of 640,000.
emphasis added
The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.
New home sales were close to pre-pandemic levels. The second graph shows New Home Months of Supply.
The months of supply decreased in March to 8.3 months from 8.8 months in February. 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 well 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 March was 477,000. This represents a supply of 8.3 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 89 thousand – is almost triple the record low of 32 thousand in 2021 and early 2022. This is close to the normal level of completed homes for sale.
The inventory of homes under construction (blue) at 282 thousand is very high but is about 11% 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 new 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 six years are shown (2019 through 2024).
In March 2024 (red column), 67 thousand new homes were sold (NSA). Last year, 62 thousand homes were sold in March. The all-time high for March was 127 thousand in 2005, and the all-time low for March was 28 thousand in 2011.
The next graph shows new home sales for 2023 and 2024 by month (Seasonally Adjusted Annual Rate). Sales in March 2024 were up 8.3% from March 2023.
Almost 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 1.5 months of completed supply (red line). This is close to the normal level.
The inventory of new homes under construction is at 4.9 months (blue line). This has declined from 7 months in July 2022, but is still a much larger than normal number of homes under construction.
And 1.8 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, mortgage rates and demand.
Median Prices 15.3% Down from Peak
And on prices, from the Census Bureau:
The median sales price of new houses sold in March 2024 was $430,700. The average sales price was $524,800.
The following graph shows the median and average new home prices. The average price in March 2024 was $524,800 up 1% year-over-year. The median price was $430,700 down 2% 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 8% from the peak. This just means builders are selling more lower priced units, not that prices have declined that much!
The last graph shows the percent of new homes sold by price. NOTE: In the Census Bureau release in May, the “sales price range groups … will be updated to better reflect the current distribution of new home prices”.
About 15% of new homes sold were under $300K in March 2024. This is up from a low of 4.9% in November 2022, but down from around 80% in 2002. In general, the under $300K bracket is going away (inflation has pushed prices higher).
Last month, 61% of sales were under $500K and 39% over $500K. The percent over $500K is down from 49% at the peak in 2022. Homebuilders are building less expensive homes to keep up volumes.
Conclusion
Sales were above expectations of 670 thousand SAAR, however, sales for the three previous months were revised down, combined.
New home sales are counted when the contract is signed, and 30-year fixed mortgage rates in March were around 6.8% according to the Freddie Mac PMMS. This was up slightly from February, but below the 7% for the August through November 2023 period.
Rates increased in April and that might slow new home sales, although homebuilders are continuing to buy down the mortgage rate.
Note that the median and average price are down from the peak due to the mix of homes sold, not because of large price declines. Homebuilders are building less expensive homes to keep up volumes.
The key positives for new home builders are the low level of existing home inventory, almost no competition from distressed sales (unlike during the housing bust) and the flexibility to buy down mortgage rates.