New home sales fell for the second consecutive month, but the subdued activity is more of a reflection of homebuilders not actively breaking ground for single-family home construction.
Specifically, the new home sales pace on an annualized basis was 482,000 in June, a decline of 7 percent from one month ago. From one year ago, sales are up by 18 percent. Still, by historical standards, new home sales can be said to be still crawling near the bottom.
The new home market is still soft, largely due to too few new housing starts. If homebuilders do not build then they just don’t have enough to sell. Local government officials need to approve a greater number of housing permits for ownership homes. Recently, most of the gains in housing permits have been for apartments.
Currently it takes only four months to find a buyer for a newly constructed home on average, which is still a good fast pace considering it took over a year to find a buyer during the market downturn. In other words, if homebuilders build it then a new home will sell without much problem.
The median price of a newly constructed home was $281,800 in June. The price in the past two months has trended lower. Homebuilders are likely building smaller-sized affordable homes to cater to first-time homebuyers. For comparison, the median price of an existing home was $236,400 in June. The price premium of a new home over an existing home is now around 20 percent, returning closer to the historical normal. That premium ratio had been unusually high at 37 percent in the past four years from 2011 to 2014.
There are indications of the younger generation’s willingness to buy (rather than rent) a very small, ‘micro-size’ condominium of 400 square feet or less. Perhaps influenced by watching Seinfeld, Sex in the City, and other TV shows with urban themes, they appear to be seeking residences with walkability. They are fine with no stove as long as there is a microwave. Leave It to Beaver,Father Knows Best, and the Brady Bunch featuring houses with large yards were for the old folks in the olden days. However, there will always be a demand for suburban homes for the simple reason that the young inevitably turn old in time.
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.