New homes sales surged in October 2017, rising to an estimated 685,000 dwelling units on a seasonally adjusted annualized rate (SAAR). This is the most seen since the 711,000 level posted 10 years ago in October 2007. Sales were up 18.7 percent on a year-over-year basis (SAAR) and up 6.2 percent sequentially from September (with sales muted by Hurricanes Irma and Harvey).
New home sales are counted differently than existing home transactions. An existing home sale is counted when the property actually closes and ownership transfers. New home sales are counted when the contract is signed. In some extreme circumstances for a counted new home sale, construction may not have yet commenced and that specific transaction may not close. As a result, new home sales often have material revisions from one month to the next.
Median new-home price was $312,800, up 3.6 percent versus the same month a year ago but down 2.2 sequentially from September (neither of statistical merit). The average new home price at $400,200 was up 17.5 percent versus a year ago and up 3.9 percent sequentially from September. The current estimated inventory of 282,000 new homes available for sale equates to 4.9 months of supply, down from 5.2 months a year ago on a seasonally adjusted basis.
The following graph shows new home sales on a SAAR and monthly median price since January 2007
The growth of the median price since 2014 is a function of both rising values and also the dearth of lower-amenity, smaller entry-level new housing construction. Again, repeated from last year:
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
- material 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 10.9 percent greater than corresponding existing home price. Since 2014, new home median prices have averaged 31.9 percent greater than existing homes. New home median prices in the latest 12-months were an average 30.1 percent greater than existing home transactions.
New and existing home median prices are shown in the following graph commencing in 2001, prior to the start of the housing bubble.
Fannie Mae’s November 2017 forecast expects a 9.0 percent increase in new single family home sales from 2016 to 2017 and a 6.4 percent gain from 2017 to 2018. The Mortgage Bankers Association November 2017 forecast shows new home sales rising 9.8 percent in 2017 year-over-year and essentially flat in 2018.
To read the entire Census Bureau news release on new home sales click https://www.census.gov/construction/nrs/pdf/newressales.pdf