Sales of new homes in the United States took a bit of an unexpected tumble last month, falling 9.4 percent to an annual rate of 571,000 in July. These are the numbers listed in the most recent Commerce Department report, revised down from the June rate of 630,000.
The numbers surely surprised economists: while they did originally expect a lower rate, it was estimated to fall somewhere between 612,000 and 610,000. The reason for the drastic drop, though, was the surprising cost of new homes: the median price increased from 6 percent since last July, to $313,700. This is the highest price for new home in the month of July, on record.
Also, though, newly built home price premiums are also up—more than double—since 2011 on existing homes.
As John Burns, of John Burns Real Estate Consulting, comments in a client note: “Long term, the new home median price has been mostly 10 percent to 20 percent above the existing home median since 1990. Since 2011, however, new home prices have been at a 35 percent to 40 percent premium over resale prices. While the exact percentages aren’t perfect due to ‘apples and oranges’ comparisons, our consultants have been confirming for years that new home sales have been slowed by larger than usual new home premiums.”
Of course, existing home supply is down, too, so that helps to push up demand on newly built homes, which moved to nearly 6 months of supply in July.
According to Zillow senior economist Aaron Terrazaz, reacting to July’s report, “The scars of the housing bust are still fresh in the minds of many homebuilders, so it is not surprising that many are taking a cautious approach to ramping up production.”
Finally, Lindsey Group chief market analyst Peter Boockvar notes, “There is still no pickup in sales for homes priced below $300,000, and this is where most of the first time households would be shopping in. I repeat that the housing industry needs a moderation in home price gains in order to better compete with renting where rents increases are now moderating.”
Now, it is important to remember that monthly sales numbers are always quite volatile so it is not necessarily a solid read. However, the annualized read has registered at 571,000 units and that marks a seven-month low. Analysts now estimate sales will hold lower than the 25-year average, which is 727,000 annually.