CALCULATEDRISK
Median New Home Price is Down 7% from the Peak due to Change in Mix
By Bill McBride
The Census Bureau reported New Home Sales in September were at a seasonally adjusted annual rate (SAAR) of 738 thousand. The previous three months were revised down.
Sales of new single-family houses in September 2024 were at a seasonally adjusted annual rate of 738,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.1 percent above the revised August rate of 709,000 and is 6.3 percent above the September 2023 estimate of 694,000.
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 slightly above pre-pandemic levels. The second graph shows New Home Months of Supply.
The months of supply decreased in September to 7.6 months from 7.9 months in August. 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 September was 470,000. This represents a supply of 7.6 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 108 thousand – is more than triple the record low of 31 thousand in February 2022. This is the most since 2009, but still close to the normal level of completed homes for sale.
The inventory of homes under construction (blue) at 258 thousand is very high but is about 19% below the cycle peak in July 2022. The inventory of homes not started is at 104 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 September 2024 (red column), 59 thousand new homes were sold (NSA). Last year, 55 thousand homes were sold in September. The all-time high for September was 99 thousand in 2005, and the all-time low for September was 24 thousand in 2011. Year-to-date sales NSA are up 3.4% compared to the same period in 2023.
The next graph shows new home sales for 2023 and 2024 by month (Seasonally Adjusted Annual Rate). Sales in September 2024 were up 6.3% from September 2023.
New home sales, seasonally adjusted, have increased year-over-year in 17 of the last 18 months.
Note that this is the opposite of Existing Home sales that have been down year-over-year for thirty-seven consecutive months!
Over 4 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 1.8 months of completed supply (red line). This is slightly above the normal level.
The inventory of new homes under construction is at 4.2 months (blue line). This has declined from 7.4 months in July 2022 but is still a much larger than normal number of homes under construction.
And 1.7 months of potential inventory that have not been started (grey line) – above 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 Down 8.6% from the Peak
And on prices, from the Census Bureau:
The median sales price of new houses sold in September 2024 was $426,300. The average sales price was $501,000.
The following graph shows the median and average new home prices. The average price in September 2024 was $501,000 down 3% year-over-year. The median price was $426,300, unchanged year-over-year. Both the median and the average are impacted by the mix of homes sold and have been mostly unchanged over the last couple of years.
The median price was down 7.4% from the peak in 2022, and the average prices was down 7.4% 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 early 2024, the Census Bureau changed “the sales price range groups in … “New Privately‐Owned Houses Sold, by Sales Price” … to better reflect the current distribution of new home prices”. Prior to 2020 the top two categories were different (as indicated), and this probably increased the purple portion of the graph (reduced from $749K+ to $600K+).
About 17% of new homes sold were under $300K in September 2024. This is up from a low of 9.3% in July 2022, but down from around 80% in 2002. In general, the under $300K bracket is going away (inflation has pushed prices higher).
Last month, 65% of sales were under $500K and 35% over $500K. The percent over $500K is down from 42% at the peak in 2022. Homebuilders are building less expensive homes to keep up volumes.
Conclusion
Sales were above expectations of 710 thousand SAAR, however, sales for the three previous months were revised down.
New home sales are counted when the contract is signed, and 30-year fixed mortgage rates in September were around 6.2% according to the Freddie Mac PMMS. This was down from August and the lowest 30-year mortgage rate since September 2022 – giving a boost to new home sales in September.
Rates have moved back up in October.
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 (and falling mortgage rates).
As I noted above, New Home sales, seasonally adjusted, have increased year-over-year in 17 of the last 18 months – the opposite of Existing Home sales that have been down year-over-year for thirty-seven consecutive months!