The National Association of Home Builders (NAHB) reports that contracts for new, single-family home sales increased slightly in August, expanding 3.5% to a 629,000 seasonally adjusted annual rate according to estimates from the joint release of HUD and the Census Bureau. However, the gain came off downwardly revised estimates for June and July, consistent with the summer soft patch for new and existing home sales. The June reading was revised down from a 638,000 annual rate to a 618,000 rate, while July was revised from 627,000 to 608,000.
Home sales have softened due to rising buyer concerns over housing affordability as home prices have grown faster than income growth and rising mortgage interest rates (a useful reminder that the NAHB/Wells Fargo HOI measure of affordability is at a 10-year low).
Despite the disappointing numbers for the summer, total sales for the first eight months of 2018 (448,000) are 6.9% higher than the comparable total for 2017 (374,000). We expect the volume of new home sales to continue to expand along the current modest pace, driven by favorable demographic demand but subject to monthly volatility, supply-side cost concerns and declining buyer affordability. Moreover, Hurricane Florence will likely have disruption effects on sales figures due to flooding in large new home construction markets in North and South Carolina.
Inventory increased in August to 318,000 single-family homes for sale. The current months’ supply stands at a healthy but rising level of 6.1. Given tight existing home inventory, more new homes can be absorbed by the market.
Median new home sales price (price of a home in the middle of the distribution) declined in August to $320,200. Managing rising construction costs in the months ahead will be a key challenge for housing affordability, as input costs increase, although recent declines in lumber prices should help.
For the first eight months of 2018 (and relative to the first eight months of 2017), new home sales were up 13.2% in the Midwest, 8.4% in the South, 5.9% in the West, and down 12.8% in the Northeast, due to some tax reform related effects and affordability concerns.