New home sales ramped-up in July 2016 to the highest level seen since October 2007, hitting 654,000 new single family dwellings on a seasonally adjusted annualized rate (SAAR). That equates to a 31.3 percent gain versus July 2015, and up 12.4 percent sequentially compared to the revised June 2016 number. The median price was $294,600, a gain of 3 percent from a year ago.
The following graph shows new home sales on a SAAR and monthly median price since January 2007.
The growth of the median price in the past four years is not just a function of rising values, but also the dearth of lower-amenity, smaller entry-level housing. Since the housing bubble implosion, builders continue to face three headwinds:
- limited supply of new lots, with higher prices resulting in more upscale, larger, higher-amenity new-home construction
- loss of a majority of the skilled-construction workforce as new home sales peaked at 1.424 million in October 2005 and plunged to just 278,000 by August 2010 – a decline of more than 80 percent
- massive increase in construction costs – labor and materials
As a result, the ratio between new and existing home median prices continues to diverge at an increasing rate. From 2001 through 2006, the average new home median price was 11 percent greater than the corresponding existing home price. Since 2013, new home median prices have averaged 33.7 percent greater than existing homes.
New and existing home median prices are shown in the following graph commencing in 2001, prior to the start of the housing bubble.
New and existing home sales are not necessarily apples-to-apples comparisons. Existing home sales are counted when the property closes and transfers title, while new home sales are tallied at the time the purchase contract is signed. In some circumstances, the building permit has not even been issued and that transaction, if closed, may not consummate for up to two years.
The Mortgage Bankers Association August 2016 forecast shows new home sales rising an additional 12.1 percent in 2017 and 7.25 percent in 2018. Fannie Mae forecasts a 9.7 percent increase from 2016 to 2017.
This is good news for the economy and homeowners as the residential building industry may finally be tracking back towards a normal market.