Housing Boom is Over as New Home Sales Fall to Pandemic Low

“Housing has been one of the brightest lights of the economic recovery from COVID-19, but a shortage of homes for sale and rising prices have crimped sales.” U. S. News & World Report

CNBC reported that:

Sales of new single family homes fell to an annualized rate of 676,000, 6.6% below May’s rate of 724,000 and 19.4% below the June 2020 level of 839,000.
The inventory of new homes for sale jumped from a 5.5-month supply in May to a 6.3-month supply in June. Last fall, it sat at a low of just 3.5 months.

Sales of newly built homes dropped in June to the lowest level since the early days of the coronavirus pandemic in April 2020, according to data released by the U.S. Census Bureau.

After a year of frenzied buying and price gains in the double digits, newly built homes are now out of reach for much of the demand that remains in the market, according to CNBC.

The median price of a newly built home in June rose just 6% from June 2020, and while that is a large gain historically, it is nothing compared with the 15%-20% annual gains seen in previous months.

Most of the homebuying is on the higher end of the market, and builders cannot afford to put up affordable homes due to skyrocketing construction costs.

Softwood lumber, in particular, spiked more than 300% during the pandemic, and while it has fallen back dramatically in the last month, it is still about 75% above its 2019 average. Other lumber products are still significantly more expensive.

“We also know there are shortages of appliances, labor and affordable lots,” noted Peter Boockvar, chief investment officer at the Bleakley Advisory Group. “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.”

While there is unquestionably still strong demand from buyers, much of it is being squelched by affordability and supply issues.

Those signs clearly showed up at builder home sites in June and have been a factor in weakening homebuilder sentiment for the past two months. Noted builder analyst Ivy Zelman wrote as much in a note last month.

The U.S. housing market is a major indicator of the strength of the economy.

When the economy is strong and people are confident about the future, they are more inclined to buy houses, upgrade their current homes or buy larger houses. When they are more concerned about the economy, new home construction, remodeling, median prices and housing sales are all depressed.

For years, real estate was considered a reliable way to increase personal wealth because the cost of property and housing consistently increased over time.

References:

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