Latest New Home Sales

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales.

• New home sales fell sizably in July. The latest figure of 394,000 (annualized sales rate) is 13 percent below the prior month’s level, though still up from one year ago.
• New home sales measure contract signings and not closings. By contrast, existing home sales released earlier in the week, which had spiked upward to the highest level in 4 years, measures closings. The fact that contract signing is coming down on new home sales likely reflects higher mortgage rates. Another factor is the still very sluggish level of new home construction. Simple math of low new home construction means fewer new home sales. This is reflected in essentially 50-year low inventory levels, as even falling new home sales is not leading to any measurable gains in unsold inventory.
• Meanwhile, the median price of a new home rose by 8.3 percent from one year ago. Tight inventory and higher construction costs are pushing up prices. The gap between new home price and existing home price is still abnormally high. Therefore, there is still further room for existing home prices to catch up.
• The prospect for new home sales is still up, despite the latest month’s tumble. The reasoning is simple. There is a broad housing shortage. Only homebuilders can genuinely relieve the inventory conditions. Whatever builders are building are selling, despite again the one month hiccup. Therefore housing starts will rise over the next two years for sure. More new home construction, then naturally, more new home sales. The only bottleneck at the moment is the difficulty of obtaining construction loans.