New Home Sales Rebound in August but Inventory Shrinks

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • Pace of contracts for new home sales ROSE 7.1 percent in August to a seasonally adjusted annual rate (SAAR) of 713,000;
  • The May sales pace originally reported as 635,000 was REVISED UP to 666,000
  • The inventory of unsold new homes DROPPED 4,000 or 1.2 percent in August to 326,000;
  • With the faster sales rate, the months’ supply of new homes for sale FELL to 5.5 in August from 5.9 in July;
  • Median price of a new home ROSE $23,000, or 7.5 percent, from July to $328,400. Year-year the median price of a new home is UP 2.2 percent or $7,000.

Trends:

  • The sales pace for new single-family homes rose for the third time in the first eight months of 2019 and only the fourth time in the last 12 months;
  • The decline in the months’ supply of new homes for sale was the largest since February;
  • The August increase in the median price of a new home was the first since April.

Data Source: Census Bureau and Department of Housing and Urban Development

Image result for new home sales

Capitalizing on the traditional home-buying season, the pace of new single-family home sales rose solidly in August. New home sales have typically improved in August, increasing in seven of the last 10 Augusts.

This year’s improvement was accompanied by yet another increase in builder confidence which, according to the National Association of Home Builders (NAHB), rose in August (and September) largely on the strength of sales expectations and traffic at model homes.

The improvement in sales – despite a hefty price increase – comes as good news for builders and construction workers. According to Bureau of Labor Statistics, the number of residential construction jobs improved in August for the fourth straight month and ninth time in the last 12 months.

Home sales generally have been challenged by the slow increase in earnings and the heavy debt-burdens of student loans. On top of that, according to Vox reported, the 10 percent tariff on $300 billion of Chinese products announced last month by President Trump to kick in September 1 will send new home prices even higher

The first round of tariff increases on imported building materials which took effect in May is already affecting many of the raw materials the housing industry depends on.

NAHB branded the May tariffs a $2.5 billion tax on housing” and the California Building Industry Association estimated the higher tariffs added $20,000 to $30,000 to the cost of an average-size new home.

Buffeting the higher building and material costs, despite an increase last week, mortgage rates remain low. According to Freddie Mac, the average rate for a 30-year fixed rate mortgage last week was 3.73 percent, down from 4.54 percent a year ago.

The Census report on new home sales tracks contracts for sale, not closings. The National Association of Relators parallel pending home sales report for existing single-family homes is due for release Thursday.

One of the more intriguing points in the Census/HUD report was the decline in the inventory of new homes for sale. The number of homes for sale at month-end has fallen for three straight months and six times in the last seven months. The supply of new homes for sale dropped for 60 straight months from May 2007 through April 2012, from an annualized rate of 545,000 to 144,000. The current decline either points to more of an economic downturn or an opportunity for construction jobs, depending on how you view the half-full or half-empty glass.

The inventory dropped about 45,000 (8.2 percent) from May through November 2007, compared with the decline of 21,000 (6.1 percent) in the most recent seven-month period.

Hear Mark Lieberman on P.O.T.U.S. (Sirius-XM 124) Friday at 6:20 am Eastern Time. You can follow Mark Lieberman on Twitter at @foxeconomics.

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