New home sales in the United States are sinking; supply, prices remain constrained

WASHINGTON, Aug 24 (Reuters) – Sales of new U.S. single-family homes rose in July after three consecutive monthly falls, but the real estate market momentum slows as house prices rise amid of the narrow supply line of some first time market buyers.

Although the Commerce Department report on Tuesday showed a large increase in the inventory of new homes, the jump was driven by a record increase in homes yet to be built. Builders take longer to finish houses, docked by expensive raw materials, as well as scarce land and workers.

“While demand for new homes remains strong, high prices and construction delays will dampen sales in the coming months,” said Nancy Vanden Houten, an American economist at Oxford Economics in New York. “According to reports, home builders are taking advantage of buyers as they try to reduce the backlog of sales.”

New home sales rose 1.0% to a seasonally adjusted annual rate of 708,000 units last month. The June sales pace was revised up to 701,000 units from the 676,000 units previously reported.

Economists surveyed by Reuters had forecast new home sales, which accounted for 10.6% of home sales in the United States, to a rate of 700,000 units in July. Sales fell 27.2% year-on-year in July. The average price of the new home soared 18.4% from a year earlier to a record $ 390,500 in July.

Sales rose to a rate of 993,000 units in January, the highest since late 2006, driven by historically low mortgage rates and the desire for spacious accommodations, as Americans worked from home and took online classes during the COVID-19 pandemic.

The market for new homes is being driven by a shortage of homes that were previously owned. But builders have struggled to take full advantage of the supply of supply, hampered by rising wood prices, as well as the lack of other building materials and appliances.

Although timber prices have fallen sharply from record highs in May, they remain above pre-pandemic levels. This month’s reports showed single-family building permits fell in July, while confidence among home builders hit a 13-month low in August.

A report on Monday showed that sales of previously owned homes rose modestly in July. Read more

Wall Street stocks traded higher, with the S&P 500 (.SPX) and Nasdaq (.IXIC) indices reaching record highs, driven by oil and travel-related stocks. The dollar (.DXY) was flat against a basket of currencies. US Treasury prices were mostly lower.

LOW COST STATES

Last month’s increase in new home sales was driven by a 1.3% increase in the population south and a 14.4% jump in the west. Sales fell 24.1% in the northeast and fell 20.2% in the midwest.

“The pandemic has accelerated migration to suburban markets and metropolitan areas in low-cost states like Arizona, Utah, Texas and Florida,” said Mark Vitner, a senior economist at Wells Fargo in Charlotte, North Carolina. “By contrast, new home sales weakened in areas where population growth has slowed, in part due to the outflow of residents looking for more affordable real estate, lower taxes and other style benefits of life “.

New home sales were concentrated in the price range between $ 200,000 and $ 749,000. Sales in the price range below $ 200,000, the most sought-after segment of the market, accounted for only 1% of transactions.

“Affordability is becoming a growing problem in the new home market,” said Bernard Yaros and economist at Moody’s Analytics in West Chester, Pennsylvania. “Single-family sale prices have risen 20% from their pre-pandemic level, which is one point lower than the accumulation of sale prices in the existing housing market, but still enough to deter potential home buyers “.

In July there were 367,000 new homes, the highest since November 2008 and 348,000 in June. Houses that have not yet been built account for 28.6% of the supply. Finished houses accounted for only 9.8% of supply.

At the rate of sales in July, it would take 6.2 months to clean up the supply of houses in the market, compared to 6.0 months in June. About 75% of homes sold last month were under construction or yet to be built.

“We expect sales to increase as the year continues, as there is enough demand, but the pace at which acceleration is likely to be determined by how quickly home builders can eliminate their current arrears and overcome material availability and other supply restrictions “. said Mark Palim, Fannie Mae’s deputy chief economist in Washington.

Report by Lucia Mutikani; Edited by Andrea Ricci and Paul Simao

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