US New Home Sales Fall To The Lowest Level In A Year, Ditto For Inventory

The US new home market is cooling to pre-pandemic levels of activity, except price growth. US Census data shows new home sales for May came in at the lowest level this past year. Falling sales have helped to lighten the pressure on inventory. The only thing that looks nothing like last year is price growth. New home prices are still accelerating, and growing at one of the fastest rates in years.

US New Home Sales Fell To The Lowest Level In A Year

US home sales dropped last month, the second consecutive month to show a decline. The seasonally adjusted annual rate (SAAR) of home sales came in at 769,000 for May, down 5.9% from the month before. Home sales are still 9.2% higher than the same month a year ago. It was the first time the annual rate of growth had seen single digits since April 2020.  

US New Home Sales

The seasonally adjusted annual rate (SAAR) of US home sales.

Source: US Census; HUD; Better Dwelling.

US New Home Price Are Still Rising, Very Quickly

New home prices are rising, despite falling home sales. The median sale price climbed to $374,400 in May, up 2.5% from the prior month. It pushed the annual rate of growth to 18.1%, the highest level since April 2013. The higher prices go, the fewer people qualify (or want) to buy a home. This naturally reduces demand, allowing inventory levels to rise.  

US Median New Home Prices

The median price of a new home sold in the United States.

Source: US Census; HUD; Better Dwelling.

US New Home Supply Rises To The Highest Level In A Year

Months of supply is a common way to measure how quickly supply is being absorbed. It’s just the ratio of homes sold in a month, compared to the inventory available. The higher it is, the more inventory is available for sale, relative to the buying volume.

Months of inventory for new homes has crept up to the highest level in a year. There were 5.1 months of supply in May, up 10.9% from a month before. Falling home sales and rising supply put the ratio just 3.8% below the same month last year. Coincidentally, that was the last time inventory was this high.

Fewer sales, more inventory, and … higher prices? That may sound weird, but it’s generally how market dynamics play out. Rising home prices tend to cool demand by lowering the number of qualified buyers that can afford to buy. At the same time, rising prices give more incentive to produce more new homes. The balance of the market is almost back to pre-pandemic levels. If it overshoots — that’s when a price correction could occur.

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