Sales of newly built homes slumped in June to their lowest level since the beforetime days of the coronavirus pandemic in April 2020, according to data released by the U.S. Census Bureau on Monday.
Sales of unused single-family homes fell to an annual rate of 676,000, 6.6% below the May rate of 724,000 and 19.4% below the June 2020 level of 839,000. Analysts had expected unused home sales to increase 3.4% in June.
After a year of frantic buying and double-digit price gains, newly built homes are out of reach for much of the demand still in the market.
The median price of a newly built home in June was only 6% up on June 2020, and while that’s a significant historical acquire, it’s nothing compared to the 15%-20% annual gains in previous months.
Most home purchases are at the higher end of the market, and builders are unable to provide affordable homes due to the skyrocketing costs of construction.
Softwood, in particular, is up more than 300% during the pandemic, and while it has fallen significantly in the final month, it is still about 75% higher than its 2019 average. Other wood products are still much more expensive.
“We also know there is a shortage of hardware and labor and plenty of affordable prices,” noted Peter Bokfar, chief investment officer at Bleakley Consulting Group. “The moderation in home sales is likely a combination of a sticky shock and a slowdown in builders’ aptitude to finish homes due to a variety of delays.”
The inventory of unused homes for sale jumped from 5.5 months of supply in May to 6.3 months of supply in June. Last fall, it hit a low of just 3.5 months. In June, the number of homes for sale that had not yet started reached an all-time lofty.
“Annual comparisons will get more firm in the coming months, as this was the time final year when the market started to rally and reached levels not seen since prior the Great Recession,” Zillow economist Matthew Speakman wrote in a statement.
Buyers in June were also hit by higher mortgage rates, which jumped nearly a quarter of a percentage point during the month. While that may not sound like much, if buyers are already stressed by rising home prices, they have less financial cushion to absorb higher mortgage rates.
Single-family homes are starting to rise, albeit slowly and not at the lowest end of the market. Permits, an indication of coming construction, are not as robust as market needs.
While there is undoubtedly still powerful demand from buyers, much of it is silenced due to affordability and supply issues. These signs were clearly visible on home construction sites in June and have been a factor in demoralizing homebuilders over the former two months. Popular construction analyst Ivy Zelman wrote a lot in a note final month.
According to the note, “We are changing our tone on the housing market based on our analysis of property data showing beforetime signs of slowing.”