Newly built home sales in June fell to their lowest level since the early days of the coronavirus pandemic in April 2020, according to data released Monday by the U.S. Census Bureau.
New single-family home sales declined to an annualized rate of 676,000, 6.6% below the May rate of 724,000 and 19.4% below the June 2020 rate of 839,000. Analysts had expected new home sales to rise 3.4% in June.
After a year full of buying frenzy and double-digit price increases, new buildings are out of reach for a large part of the demand that has remained on the market.
The median price of a newly built home increased just 6% in June from June 2020, and while that is a huge increase in the past, it’s nothing compared to the 15% -20% annual increases seen in previous months.
Most home purchases are at the high end of the market and home builders cannot afford to build affordable homes due to skyrocketing construction costs.
Softwood in particular has increased more than 300% during the pandemic, and although it has decreased dramatically in the last month, it is still around 75% above the 2019 average. Other wood products are still significantly more expensive.
“We also know there is a shortage of equipment, labor and affordable land,” said Peter Boockvar, chief investment officer of the Bleakley Advisory Group. “The moderation in home sales is likely a combination of a sticker shock and the slowdown in home builders’ ability to complete homes due to a variety of delays.”
The number of new apartments for sale jumped from an offer of 5.5 months in May to an offer of 6.3 months in June. Last autumn it was at a low of only 3.5 months. In June the number of property sales that had not yet started reached a new all-time high.
“Year-to-year comparisons will become even more difficult in the months ahead as the market began to surge around this time last year, reaching highs not seen since the Great Recession,” Zillow economist Matthew Speakman wrote in a press release.
Buyers were also hit by higher mortgage rates in June, which rose about a quarter of a percentage point over the month. That may not sound like much, but when buyers are already overwhelmed by higher home prices, they have less financial cushion to absorb higher mortgage rates.
Construction starts for single-family homes continue to rise, albeit slowly and not at the bottom of the market. Permits, an indicator of future construction, are not as robust as the market needs.
While there is undoubtedly still strong demand from buyers, much of it is being suppressed by affordability and supply issues. These signs were clearly evident on builders ‘sites in June and have contributed to the weakening of builders’ mood in the past two months. Well-known construction analyst Ivy Zelman wrote this in a note last month.
“We are changing our tone in the real estate market based on our analysis of proprietary data showing early signs of cooling,” the press release said.