Housing boom is over as new home sales fall to pandemic low
Newly built home sales fell in June to the lowest level since the early days of the coronavirus pandemic in April 2020, according to data released Monday by the US Census Bureau.
Sales of new single-family homes fell at an annualized rate of 676,000, 6.6% below May’s rate of 724,000 and 19.4% below June 2020’s level of 839,000. Analysts expected until sales of new homes increase by 3.4% in June.
After a year of frenzied buying and double-digit price increases, newly built homes are now out of reach for much of the demand that remains in the market.
The median price of a newly built home in June was up just 6% from June 2020, and while that’s a significant gain historically, it’s nothing compared to the annual gains of 15% to 20% observed in previous months.
Most home purchases are at the high end of the market and builders cannot afford to build affordable homes due to soaring construction costs.
Softwood lumber, in particular, has soared more than 300% during the pandemic, and while it has fallen dramatically over the past month, it is still about 75% above its average of 2019. Other wood products are still much more expensive.
“We also know there are shortages of appliances, labor and affordable land,” noted Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The moderation in home sales is likely a combination of sticker shock and a slowdown in builders’ ability to complete homes due to various delays.”
The stock of new homes for sale fell from 5.5 months supply in May to 6.3 months supply in June. Last fall, it sat at a low of just 3.5 months. In June, the number of homes for sale not yet started hit a record high.
“Year-to-year comparisons will become even more difficult in the coming months, as it was around this time last year that the market began to soar and reach heights not seen since before the Great Recession,” wrote Zillow economist Matthew Speakman in a statement.
Buyers in June were also affected by higher mortgage rates, which climbed about a quarter of a percentage point during the month. While that may not seem like much, if buyers are already stretched by rising home prices, they have less of a financial cushion to absorb higher mortgage rates.
Single-family housing starts continue to rise, albeit slowly and not at the bottom of the market. Permits, an indicator of future construction, are not as strong as market needs.
While there is unquestionably strong demand from buyers, much of it is stifled by accessibility and supply issues. These signs appeared clearly on homebuilding sites in June and have contributed to weakening homebuilder sentiment over the past two months. Notorious builder analyst Ivy Zelman wrote as much in a note last month.
“We are changing tone on the housing market based on our analysis of proprietary data showing early signs of a slowdown,” the note said.