New Single Family Home Sales Inch Back In August

Article Summary:

Sales of new single-family homes in the U.S. increased modestly in August as prices continue to climb, making the housing market one of the strongest sectors of the post-Coronavirus economy.

Sales of new single-family increased modestly in August, particularly in the South. However, new home sales continue to drop in the Midwest. The sales of new single‐family houses in August 2021 were at a seasonally adjusted annual rate of 740,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 1.5% above the revised July rate of 729,000 but is 24.3% below the August 2020 estimate of 977,000.

During the pandemic, the housing market was growing by double digits for consecutive quarters. However, in the second quarter of 2021, things started to slow down. Typically, August is a slower month for sales than July, so the increase — albeit a modest one — is encouraging and could indicate that the growth in July, which came on the tail of three consecutive drops, may continue.

The demand for new homes plateaus as prices rise

The data seems to indicate buyers have left the “buy at all costs” mentality of earlier months as the cost of buying a home increases and requires a larger share of the income of a typical American household.

The median sales price of new houses sold in August 2021 was $390,900. The average sales price was $443,200.

The cost of lumber tumbled from record highs, but land and labor shortages continue to drive high prices.

The housing affordability index declines

The drop in new home sales tracks well with the housing affordability index, which dropped to 150.4 in July from a high of 187. 8 in January 2021.

The Housing Affordability Index (HAI) is probably the most widely-quoted metric for housing affordability. The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home under current underwriting standards. Among other things, it takes into consideration mortgage rates, the median price of single-family homes, and the qualifying income based on a 25% qualifying ratio for monthly housing expense to gross monthly income with a 20% down payment.

However, these affordability indexes are deceiving because they don’t reflect the lack of supply of housing in many markets and how hard it can be for families with high debt levels to qualify for a mortgage. For instance, The HAI assumes borrowers can pay a 20 percent down payment. This is quite the assumption, considering the debt levels of many Americans.

Another factor that is helping to keep housing affordability low — at least on paper — is that mortgage rates are at historically low levels.

The seasonally‐adjusted estimate of new houses for sale at the end of August was 378,000. Housing demand has increased dramatically during the pandemic. In part, this was triggered by a search for larger homes with more room for home offices and homeschooling.  The strong demand far outpaced supply.

However, the effects of the pandemic are starting to drop as vaccinations allow companies to get workers back to offices in city centers, and schools can reopen for face-to-face learning. There is now a supply of 6.1 months at the current new homes sales rate.

Key Takeaways

  • Sales of new single-family homes increased by 1.5% in August. This is still 24.3% below the August 2020 estimate of 977,000.
  • Housing demand has increased dramatically during the pandemic, which triggered a search for larger homes with more room for home offices and homeschooling.
  • The demand for new homes plateaus as prices rise and buyers balk at record-high prices.
  • The housing affordability index dropped to 150.4 in July from a high of 187. 8 in January 2021.
  • There is now a supply of 6.1 months at the current new homes sales rate.
Article Sources
  1. 2021 Mortgage Industry Study – SuperMoney
  2. New One Family Houses for Sale in the United States – Federal Reserve
  3. Monthly Supply of Houses in the United States – Federal Reserve
  4. NAR Housing Affordability Index – National Association of Realtors