The housing boom is done as new home sales decrease to a pandemic low

July 28, 2021: -In June, the sales of newly built homes decreased to the lowest level since the early days of the pandemic in April 2020, according to data released by the U.S. Census Bureau on Monday. Sales of new single-family home came down to an annualized rate of 676,000, 6.6% below May’s rate of 724,000, and 19.4% below the June 2020 level of 839,000.

Analysts expected new home sales to increase by 3.4% in June.

After a year of frantic buying and price gains in the double digits, newly built homes are now out of reach for much of the demand that remains in the market.

The median price of a newly built home in June rose just 6% from June 2020, and while that is a significant gain historically, it is nothing compared with the 15%-20% annual gains seen in previous months.

Most home buying is on the higher end of the market, and builders cannot afford affordable homes due to skyrocketing construction costs.

Softwood lumber, in particular, spiked more than 300% during the pandemic, and while it has fallen back dramatically in the last month, it is still about 75% above its 2019 average. Other lumber products are still significantly more expensive.

“We also know there are shortages of appliances, labor, and affordable lots,” noted Peter Boockvar, chief investment officer at the Bleakley Advisory Group.

“The moderation in home sales is likely a combination of sticker shock and the slowdown in the ability of builders to finish homes because of a variety of delays.”

The inventory of new homes for sale jumped from a 5.5-month supply in May to a 6.3-month pool in June. Last fall, it sat at a low of just 3.5 months. In June, the number of homes for sale that had not started hit an all-time high.

“Annual comparisons will get even more difficult in coming months, as it was this time last year that the market began to surge and reach highs not seen since before the Great Recession,” wrote Zillow economist Matthew Speakman in a release.

Buyers in June were also hit with higher mortgage rates, which spiked about a quarter of a percentage point during the month. While that may not sound like a lot, if higher home prices already stretch buyers, they have less of a financial cushion to absorb higher mortgage rates.

Single-family housing starts continue to gain, albeit slowly and not on the lowest end of the market. Permits, an indicator of future construction, are not as robust as the market needs.