Declining Affordability Conditions Put a Damper on New Home Sales
Worsening affordability conditions stemming from growing supply chain disruptions and rising mortgage rates pushed new home sales lower in March.
Sales of newly built, single-family homes in March fell 8.6% to a 763,000 seasonally adjusted annual rate from an upwardly revised reading in February, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New home sales are down 12.6% compared to March 2021.
“Growing affordability challenges are slowing new home sales and taking a toll on the housing market,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Ga. “Mortgage rates jumped nearly a full percentage point between the end of February and March and builders continue to face escalating construction and development costs which are putting upward pressure on new home prices.”
“Buyers are facing sticker shock due to deteriorating affordability conditions and a lack of existing home inventory,” said NAHB Assistant Vice President of Forecasting and Analysis, Danushka Nanayakkara-Skillington. “Only 14% of new home sales in March were priced below $300,000. A year ago, it was 34%.”
A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the March reading of 763,000 units is the number of homes that would sell if this pace continued for the next 12 months.
New single-family home inventory was up 52.4% over last year, rising to a 6.4 months’ supply, with 407,000 available for sale. However, just 35,000 of those are completed and ready to occupy.
The median sales price rose to $436,700 in March from $421,600 in February and is up more than 21% compared to a year ago, due primarily to higher development costs, including materials.
Regionally, on a year-to-date basis, new home sales fell in two regions, down 9.2% in the Midwest and 13.9% in the South. New home sales were up 10.5% in the Northeast and 8.5% in the West.