Analysts were expecting a 3.4 percent increase in new home sales in June 2021. But the July 26 USCB statement, drafted in partnership with the Department of Housing and Urban Development, shattered their projections. The 676,000 home sales in June 2021 reflected a 6.6 percent drop from May 2021's 724,000 sales and a 19.4 percent drop from the 839,000 sales in June 2020.
Meanwhile, the inventory of new homes for sale climbed from a 5.5-month supply in May 2021 to a 6.3-month supply the following month. It sat at a low of 3.5 months last fall. The USCB report also revealed that the number of homes for sale that had not yet started construction also rose in June. All in all, these increases followed a year of frenzied buying and price gains in the double digits.
But in spite of the availability of new homes to address the demand, these became out of reach for most Americans. The median price of a newly-built home went up by 6 percent in June 2021 from its June 2020 price. Most purchases of new homes came from the higher end of the market, and builders claimed rising prices of construction materials prevent them from putting up affordable homes.
Bleakley Advisory Group Chief Investment Officer Peter Boockvar noted: "We also know there are shortages of appliances, labor and affordable lots. The moderation in home sales is likely a combination of sticker shock and the slowdown in the ability of builders to finish homes because of a variety of delays."
An increase in mortgage rates amounting to about 0.25 percent also hit new home buyers in June. While the rise may not be substantial, it nevertheless worsened the situation for those wanting to buy a new house. Buyers already stretched by higher home prices would have less of a financial cushion to absorb higher mortgage rates.
New home buyers are in for a tough time
Buyers still exhibited strong demand for new homes, but supply issues and affordability have had a negative impact on this. Even homebuilders themselves have noticed the weakening sentiment in May and June 2021. Housing industry analyst Ivy Zelman noted: "We are shifting our tone on the housing market based on our analysis of proprietary data showing early signs of a cool down." (Related: Housing market recovery: Pending home sales rose in May.)
A Reuters report also expressed the same sentiment. It noted that higher production costs are forcing builders to hold back new construction. This had the unfortunate consequence of keeping supply tight and home prices in the upper levels, essentially locking out new buyers from purchasing their own homes. (Reated: Pension funds are buying up entire neighborhoods of single family homes, contributing to America's housing crisis.)
The price of softwood lumber used in home construction had a three-fold increase during the pandemic. While softwood lumber prices have dramatically fallen in June 2021, it was still 75 percent more expensive than its 2019 average price. The same trend was also observed in other lumber products.
However, wildfires in the U.S. and Canada threatened to push up lumber prices. Oxford Economics Lead U.S. Economist Nancy Vanden Houten told Reuters: "Some of the recent decline in lumber prices has been reversed due to the impact of wildfires. It will probably take months for lower lumber prices to flow through to the price of new homes."
David Berson, chief economist at Ohio-based firm Nationwide, also put in his two cents on the matter. He said: "Home builders continue to hold back on contracts for new homes given input cost and availability uncertainties, with significant uncertainty about what it will cost to build a house and when it can be delivered. Berson noted that new home sales will find it hard to pick up significantly in the near term until builder costs and supply chain problems are addressed.
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Sources include:
Census.gov [PDF]
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