Material and labor shortages continue to constrain both new-home supply and sales, economists said as February saw another dip in new-home sales. Buyer demand remains high, but builders struggle to add greater inventory.
Sales of new single-family homes reached a seasonally adjusted annual rate of 772,000 in February, down 2% from January and down 6.2% compared to a year ago, the U.S. Census Bureau and the Department of Housing and Urban Development reported Wednesday. Still, sales remain above pre-pandemic levels. Also, new-home sales did post a significant increase in the Northeast, up 59.3% over last month. The Midwest also posted a 6.3% increase in February. But new-home sales fell 1.7% in the South and by 13% in the West.
Buyers may turn to the new-home market finding fewer and fewer selections in the existing-home market.
“With resale inventory so low and rental occupancy rates high, the new-home market is close to the only game in town,” Ali Wolf, chief economist at Zonda, told BUILDER. “The problem is, the new-home market is running into its own inventory shortages as well. Home sales would be higher if we had more homes for sale and more builders willing to sell them, but for now, the ongoing material and labor shortages are holding the market back from full potential.”
Higher home prices and rising mortgage rates also may start to sideline more potential buyers. The median sales price of a new home jumped 10.7% from a year ago, reaching $400,600 in February. The average sales price was $511,000. New-home prices have increased 31% compared to three years ago.
“We may be approaching a pivot point when higher home costs and higher mortgage rates cool both sales and price increases, but given the supply-and-demand imbalance, we may not hit that point this year,” Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia, told Reuters.
Builders also are facing an all-time high in a backlog of homes that are approved for construction but not yet started. They say delays are caused by higher prices and shortages of common construction materials like lumber for framing, cabinets, garage doors, countertops, and appliances.