New Home Sales Inch Up as Builders Cut Prices and Shrink Footprints

New Home Sales Inch Up as Builders Cut Prices and Shrink Footprints

U.S. new home sales showed marginal improvement in June, though the broader market reflects persistent affordability challenges. According to data from the U.S. Census Bureau, sales of single-family homes rose 1.6% month-over-month to a seasonally adjusted annual rate of 628,000. Despite the monthly gain, volume remains 5.6% lower than the same period last year, indicating that demand has yet to fully recover.

Builders are responding to hesitant demand by adjusting prices and product offerings. The median sales price for new homes in June dropped to $398,300, a decline of 3.3% from May and 2.7% below the previous June. This marks the lowest median price observed since last July. The price reduction comes as the industry continues to navigate an environment strained by elevated borrowing costs.

To move inventory, developers are increasingly relying on incentives and focusing on smaller, more affordable housing stock. Odeta Kushi, Deputy Chief Economist at First American, highlighted a shift in the market composition. More than half of June sales were priced below $400,000, up from 47% a year ago, while sales under $300,000 rose to nearly one-quarter compared to 16% previously. This aligns with National Association of Home Builders data showing the median new home size has decreased to 2,176 square feet, down from over 2,600 square feet a decade ago.

While lower prices may attract buyers, Robert Dietz of the NAHB noted that the sub-$300,000 price point is generally only feasible in markets with lower regulatory and development costs.

Inventory levels remain a focal point for the sector. The seasonally adjusted estimate of new houses for sale stood at 485,000 at the end of June, a slight decrease from May but high by historical standards. This represents 9.3 months of supply, well above the six-month threshold typically associated with a balanced market. Analysis by Bill McBride of Calculated Risk notes that completed homes available for sale are nearly quadruple the record lows seen in early 2022.

This environment impacts various sectors of the housing economy. For real estate platforms such as Zillow Group, Inc., which connects consumers with digital real estate solutions, fluctuations in new construction inventory and pricing strategies are critical variables to watch. Currently, Zillow is trading at $30.55.

What to watch

• Upcoming earnings reports from major homebuilders regarding order cancellation rates.
• Federal Reserve minutes for signals on interest rate trajectory impacting mortgage costs.
• Q3 data on average home size and construction starts.

Source: original release