Building Material Prices Affect New Home Sales

Record prices for building materials and a continuing lack of labor reduced new home sales in April to a seasonally adjusted annual rate of 863,000, about 5.9% lower than the revised rate in March, according to a joint analysis from the US Census Bureau and the Department of Housing and Urban Development.

While home builders are faced with supply constraints, the demand has yet to be met. New home sales for April are nearly double the April 2020 estimates of 582,000.

“New home sales volume remains well above pre-pandemic levels, but it has become very clear that the high and volatile price of lumber and other key building materials is presenting challenges to the construction process and selling new homes, “said Matthew Speakman, an economist at Zillow.

To account for uncertain prices and the availability of materials, home builders are putting off the availability of homes until they are further along in the construction process. This is not due to a lack of demand; quite the contrary, Speakman pointed out. Homes are selling as fast as ever, and many builders say sales could be higher if materials-related limitations weren’t in place.

“683,000 new homes were sold in 2019, and the current pace of sales is well on track to exceed that number this year, even despite the most recent slowdown,” Speakman said. “Since demand from home buyers is unlikely to subside, it appears that the home construction industry may have to start operating at lower capacity, with builders cutting back on construction and increasing the time since permitting. until completion “.

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While total sales fell during the month, homes sold, but not yet started, increased 16.5% to the highest level since 2006. Similarly, while homes for sale at the end of the month increased by 16.5%. 3.9%, the increase was driven almost entirely by houses where construction has not yet begun, said Doug Duncan, chief economist at Fannie mae.

“This increasing delay in construction, combined with another sharp rise in median home sales prices (up 20 percent from the previous year), suggests to us that demand for new homes is still strong, but homebuilders they are struggling to keep up, ”Duncan said.

The seasonally adjusted estimate of new homes for sale at the end of April was 316,000, a 4.4-month supply at the current sale rate.

While macroeconomic factors are likely to affect activity to some extent, sales volume remains strong and could find another gear if / when the recent volatility in materials prices cools down a bit. However, there is no expected timeline for costs to simmer. Home prices rose for the 10th consecutive month in March and are 13.2% higher year-over-year, according to the most recent report. S&P CoreLogic Case-Shiller House Price Index Report. The median sale price in April 2021 was $ 372,400, but the median sale price was $ 435,400.

Despite these rising prices, underlying demand for owner-occupied homes remains strong, and with a record shortage of existing homes for sale, prospective buyers are moving into new homes.

“How much new home sales will increase over the rest of the year will depend in large part on how much homebuilders can increase production,” said Nationwide chief economist David Berson. “With lots and workers shortages probably for a while, however, stronger sales may be limited. Still, we expect new home sales to trend higher for the remainder of 2021, with sales for the year at the highest level since 2006. “

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