Economic research

New home sales rise as inventory improves

November 2021 New Home Sales

What happened this month:

New home sales rose for the third consecutive month in November as still-low mortgage rates prompted buyers to close ahead of the winter holidays. However, October sales figures were revised down, indicating slower than expected activity. A total of 744,000 new homes were sold during the month, a 12.4% increase from the downwardly revised October figure, driven by double-digit gains in the northeast and west. New home sales were down 14.0% from the same month in 2020.

The cost of lumber rose from $573 in early November to $825 per thousand board feet at the end of the month, and rose to $1,100 per thousand board feet in December, following the announcement by the Commerce Department that it would double the import duties. on Canadian lumber in 2022. The change drives up construction costs and translates into higher prices, with the median price of new homes hitting $416,900, an 18.8% increase from a year ago. one year old. The supply of new homes improved, going from a low of 3.7 months of inventory in March to 7.6 months in November (6.5 months after seasonal adjustment). Sales of entry-level homes – priced below $300,000 – accounted for just 14% of total sales, down from 38% in 2020.

New house prices - historical chart

What does that mean:

New homes offer an attractive combination of larger footprints, contemporary floor plans, superior energy efficiency, and warranties. Additionally, construction companies are well positioned to navigate the pandemic transition to remote working and suburban living. With tight inventory for existing homes frustrating many buyers, low interest rates have given many wiggle room in their budgets to consider new homes. Strong housing demand keeps homebuilders’ outlook for the next six months optimistic. However, the resurgence of lumber prices and accelerating inflation are pushing manufacturers to pass these costs on to consumers. This affordability wedge comes as builders seek to overcome a decade of underbuilding, which has left real estate markets short of 5.2 million new homes. While millions of millennial buyers look to past generations’ ability to easily find affordable new homes, today’s limited options and high prices show a very different picture.

Supply of new housing - historical graph

George RatiuGeorge Ratiu

George Ratiu