In late August, the US Census Bureau reported the latest figures on new home sales. Overall, there were some signs of weakness that could favor people in the market for a new home, but that depends on how you look at the numbers, and which part of the market interests you.
New Home Values Slip as Sales Slow
The Census Bureau report showed that the median price of new homes sold in the United States slipped by $10,300 in July, to $269,800. This was the second consecutive monthly drop in the median price of new homes sold, as a result of which that price has now dropped by $16,800 in just two months. The median price of new homes sold is also down since the end of last year.
It is easy to trace the source of this price weakness. The pace of new home sales has also slipped over the past two months, from an annual rate of 454,000 to an annual rate of 412,000, a decline of over 9 percent. An optimist might say that the pace of new home sales is still up by 12.3 percent year-over-year, but that is largely because new home sales hit a soft spot last summer as well. Come October, the year-over-year comparisons will get tougher, and unless the trend reverses, new home sales are on track to show a year-over-year decline by then.
Perhaps the most direct evidence how the slowdown in sales has impacted home values is in the current inventory of new homes on the market. As sales have slowed over the past two months, that inventory has climbed from 5.1 months to 6.0 months worth of homes for sale, the highest such level in over a year.
So, what's going on is a simple matter of supply and demand. Demand, as represented by sales, has fallen off. Supply, as represented by inventory on the market, has grown. Falling demand and rising supply generally translate to lower prices. In general terms, this means more of a buyer's market in which shoppers can take their time and insist on bargaining concessions. However, real estate is notoriously inconsistent, so how true this generalization is depends on where you look.
There are important differences in the new home sales trends seen in different segments of the market.
First, the upscale market does not appear to be slowing as much as the market overall. While the median price of a new home sold has fallen in the past two months, the mean price has risen. This suggests that the mean is being pulled up by high-end sales which are outstripping the overall sales trend. So, if you are looking at houses above that $269,800 median price, you may find conditions a little less in the favor of buyers.
Besides the distinction between high-end prices and the market overall, there are important geographical differences in the recent sales trend. While the pace of new home sales has slowed over the past two months in the Northeast, Midwest, and West, it is up significantly in the South. This means that buyers in the South may want to be a bit more aggressive about getting into the market, and about meeting the asking price when they find a property they like.
What Happened vs. What Will Happen
Of course, new home sales figures represent what has already happened in the housing market. Trying to discern what will happen next requires shifting from the sales figures themselves to underlying economic trends.
A few days after the new home sales figures came out, the Bureau of Economic Analysis announced that it was revising its estimate of second quarter GDP growth up to 4.2 percent. The original estimate had already been a very encouraging 4.0 percent, so this revision seems to both confirm and strengthen the growth trend. Corroborating that evidence of economic strength is the fact that employment growth has continued to be strong throughout the past six months.
As long as economic growth seems to be gathering momentum, would-be home buyers should not get too complacent about supply-and-demand conditions being in their favor. Continued growth could turn those conditions around, and that growth could represent an added risk to buyers in the form of higher mortgage rates.
In short, conditions are pretty good for buyers throughout most of the market for new homes right now, so would-be buyers might be wise to act while that is still the case.