Sales of newly built, single-family homes fell 8.1 percent to a seasonally adjusted annual rate of 406,000 units in June, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Sales numbers for May were revised downward to 442,000.
“The numbers are a little disappointing, but May was unusually high and some pull back isn't completely unexpected,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Delaware. “Our surveys show that builders are confident about the future and we are still seeing a gradual upward trajectory in housing demand.”
“With continued job creation and economic growth, we are cautiously optimistic about the home building industry in the second half of 2014,” said NAHB chief economist David Crowe. “The increase in existing home sales also bodes well for builders, as it is a signal that trade-up buyers can move up to new construction.”
Regionally, new-home sales were down across the board. Sales fell 20 percent in the Northeast, 9.5 percent in the South, 8.2 percent in the Midwest and 1.9 percent in the West.
The inventory of new homes for sale held steady at 197,000 units in June. This is a 5.8-month supply at the current sales pace.
By Frank Anton, vice chairman of Hanley Wood, publisher of Builder
I think it's really that simple to explain why new homes have their lowest share of the for-sale housing market in at least the last 35 years. As you can see in the accompanying chart, new homes have historically accounted for about 1 out of 6 homes sold, which represents about a 15 percent share of market. Currently the share of market for new homes is less than half that.
To prove my point that housing price disparity between new and existing homes is behind the decline, I did some research. In 1983, the median price of a new home was seven percent higher than the median price of an existing home. In 1993, the difference was 16 percent, and in 2003 new homes were eight percent more expensive than existing homes.
So what's the difference now? It's pushing 40 percent, with the median price of a new home at more than $270,000 and the median price of an existing home around $200,000.
Of course you can argue that the most active buyers today are second and third time move-up buyers and that new homes are bigger and better than existing homes, and, therefore, new homes have to – and should – cost more. And you can't forget that builders make more money and at a higher margin when they sell a bigger, more expensive home.
But, having said that, I still think it's time – past time, in fact – for the industry to step back and acknowledge that it is under-serving not only the first-time buyer market but the lower end of the move-up market as well. And if builders want to build and sell more houses, they need to think small and think less expensive.