New single-family home sales fell 7.3% in May, but the bigger problem is that the share of affordable new homes is shrinking.
Sales of new single-family homes in May were down 7.3% from April and 6.8% from a year earlier, according to the latest data from the Census Bureau and the Department of Housing and Urban Development.
New data released Wednesday showed the median sales price was $424,900, flat year over year and up 2% month over month, but the stability of sales is misleading.
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A year ago, roughly one in five new homes sold for less than $300,000. In May, it was about one in seven people. The affordable end of the new construction market is shrinking.
“Affordable new housing is becoming harder to build and harder to find. That’s the real story,” Spacial co-founder and CEO Maor Greenberg told Inman.
What the headline price doesn’t tell you
The flat median price masks large changes in what is actually selling. Median sales price was $424,900, unchanged year-over-year. However, the average sales price reached $540,600, an increase of 5% over the same period.
If the average price increases but the median price stays the same, it means that the same homes are not increasing in price, but more expensive homes are being sold. While the middle of the market remains the same, the mix of things being traded has shifted towards the high end.
While more expensive homes have become a larger share of the total and the average value is rising, the median value has remained the same. Even if the headline price hasn’t changed, the composition of the market has.
Total inventory rose to 496,000 homes in May, with completed homes taking longer to sell each month this year. It went from about 3 months in January to about 4 months in May.
At first glance, it looks like a buyer’s market building. According to Greenberg, that’s not the case.
“Increased inventory usually means oversupply, but let’s look at what’s inside those 496,000 units,” Greenberg said. “Only 118,000 homes have been completed. The rest have not started construction or are under construction. This is not a glut of vacant homes ready for immediate occupancy. It is a backlog of homes that builders have already signed up for, piling up against late buyers.”
At the same time, the future supply pipeline is becoming thinner. April data referenced by Greenberg showed that while construction starts have slowed, the number of dedicated homes is increasing. This is a combination that suggests further supply tightness ahead.
The missing crosspiece
Greenberg said it’s no mystery that new construction under $300,000 disappears. Builders still charge entry-level prices because today’s labor, land, and material costs are not economically viable. Therefore, they create a lucrative luxury market.
“Hard pricing protects profit margins, but it’s a shrinking business that survives by serving fewer, more affluent buyers and moving away from entry-level homebuilding,” Greenberg said.
This withdrawal has consequences that worsen over time. First-time buyers who couldn’t find the right price in the used home market were supposed to find peace of mind in a newly built home. That relief has not materialized. Despite increasing market share, no entry-level homes are being built.
“For buyers, prices aren’t higher just because the quality of the homes is better or because demand is surging,” Greenberg said. “The heights buyers were looking for have quietly disappeared.”
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