New home sales surged in April and they are selling quickly. The only problem is we are not yet building enough to fully satisfy the demand.
Specifically, new home sales rose 26 percent from one year ago in April to 517,000 annualized pace – which would be the third highest monthly activity in eight years. On average it took 4 months to find a buyer. The median price was $297,300, which is 8.3 percent above last year’s price.
The gap between new home price and existing home price still remains very wide. It implies that existing homes provide a relatively better bargain in relation to newly constructed homes.
Even though new home sales are rising strongly in percentage terms, they are only at about half the activity as during the bubble years nearly a decade ago. This implies, first, that today’s strong activity is not likely to be a bubble. Second, there is more room to grow.
The median number of months to find a buyer of new homes remains near historic lows. In April, it took 4 months. Given the low supply of both existing and new home inventory, as evidenced by low months supply of inventory, there is zero concern over any over production.
For the year as a whole, new home sales are projected to rise by about 30 percent in 2015 and then another 20 to 25 percent in 2016. It’s a good time to be a homebuilder. If only the banks would make more construction loans or, depending upon your point of view, if there were less financial regulations to permit banks to make more construction loans.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.