New Home Sales Stagnate Despite High Inventory Levels

There are plenty of newly built homes for sale these days—and fewer takers. The rate of sales for newly built houses fell 0.6% between May and June to an annual rate of 617,000, down 7.4% from the same month last year, the Census Bureau said Wednesday. That was despite the number of homes for sale ticking up to a fresh high of 476,000, the most since February 2008.

Waiting for Affordability to Improve

The slump in sales for newly-built homes despite rising inventories echoes the trend in sales of existing homes. The data may reflect a standoff where sellers are holding firm on price, while many buyers are waiting to purchase a home until it becomes more affordable—either through price cuts or lower interest rates on home loans.

“Building inventory has done little to stoke buyer demand as prices remain stubbornly high,” Hannah Jones, senior economic research analyst at Realtor.com, wrote in a commentary. “Many buyers are holding off on jumping into the market, hoping to see lower mortgage rates or lower home prices later this year.”

A Shifting Market?

The median newly constructed home sold for $417,300 in June, an uptick from $407,100 in May. That was down from the peak of $460,300 hit in October 2022, but around $100,000 more than typical pre-pandemic prices.

Buyers may, in fact, be seeing some relief on the mortgage front: the average rate offered for a 30-year mortgage last week was 6.77%, the lowest since March, according to Freddie Mac.

Overall, sellers may be losing the upper hand in the housing market, where low for-sale inventories have bolstered sellers’ pricing power for both new and existing homes. That’s changing as the number of houses for sale rises. As of June, it would take a little more than nine months of sales to exhaust the available inventory, the highest in nearly two years.

Forecasters at Pantheon Macroeconomics expect the number of new homes for sale “will increase further, putting downward pressure on prices and homebuilders’ margins.”

“New home prices typically fall when inventory is greater than about eight months’ sales,” Ian Shepherdson, chief economist at Pantheon, wrote in a commentary.

Conclusion

The housing market is experiencing a shift as new home sales stagnate despite a high inventory level. Many prospective buyers are waiting for affordability to improve, either through price reductions or lower mortgage rates. With unsold inventory piling up, sellers may be forced to lower prices to attract buyers. The median price of newly constructed homes has seen a slight increase, but it remains higher than pre-pandemic levels. However, buyers may find some relief in mortgage rates, which have reached their lowest point in months. Overall, the housing market is expected to continue shifting, with increased inventory putting downward pressure on prices and homebuilders’ margins.

Sources:
1. Dow Jones Newswires and The Wall Street Journal
2. Freddie Mac