Have been wanting to use the words Smoking Hot regarding real estate since the last downturn in 2008, and finally have a reason: August 2020 new home sales! New home sales came in at a blistering 1.011 million units in August on seasonally adjusted annualized rate (SAAR), up a massive 43.2 percent from the prior August. New home sales peaked at 1.431 million on a SAAR in March 2005 and then spiraled downwards to a 278,000 trough in March 2010. This was the first time since December 2006 that new home sales hit the seven figure level.
As people spend more time in their home, the ultimate intrinsic value of housing has hit an all-time record in our lifetime and continues to grow, especially in new housing that has never been lived in, is safe, new and clean – keys in the days of the pandemic. That is translating into growing new home demand.
The August median home price of $312,800, though down from $337,000 one-year ago, does not equate to declining values, but rather an increase in construction and sales of entry level housing targeting 1st-time Millennial homebuyers rather than move-up and up-scale sales activity. Average price in August 2020 of $369,000 was likewise down from $404,200 one year ago.
New home sales along median price are shown monthly commencing January 2000 in the next graph.
New and existing home median sales prices are detailed in the next graph. The difference between the two was just $2,200 in August 2020.
The last graph shows the average premium for a new home compared to existing home median prices based on a 12-month moving average.
There was an estimated 282,000 new homes for sale on the market as of the end of August equating to a tight 3.3 month inventory on a seasonally adjusted basis at the current rate of sales.
Recall that the metrics of new home sales differ from existing home sales. Existing home sales are actual closings in which the ownership of the property transfers from sellers to buyers. New home sales are counted when a purchase contract is signed and a deposit paid. Some new home sales counted have yet to even have obtained a building permit. As a result, new home sales data are subject to potential high-levels of restatement over time. See two prior blogs detailing the extent to which new home sales data are restated:
It is remarkable that builders are able to meet these delivery targets given the headwinds of:
- Ongoing skilled laborer shortages for a decade
- Significant lumber cost escalation – with lumber costs up 110 percent since mid-April per the National Association of Home Builders
- Months backlog in delivery of new appliances
The appliance shortage is personal. Our 15-year old washing machine died several weeks ago and we are now on a long waiting list for delivery of a new washer and dryer. The dealer ordered 55 washing machines one month ago and has already sold 45 of them – yet delivery is optimistically at least another month out. Until then, am hoarding quarters for the first time since college to use at the laundromat.