Strong March for New Home Sales

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Contracts for new home sales expanded by 5.8% in March, according to estimates from the joint data release of HUD and the Census Bureau. The growth in sales continues along a positive trend for the market, which is supported by solid job growth, improving household formations, continuing favorable housing affordability conditions, and tight existing home inventory.

The seasonally adjusted annual pace for March new single-family home sales was 621,000. The three-month moving average is currently at a post-recession high (598,000). The March rate is 5.8% better than February and a 15.6% gain over a year ago. The growth in March sales represented an upside surprise, given the good weather in February and poor weather conditions for significant parts of the nation in March.

Inventory growth continued in March. After hovering near 240,000 for most of 2016, inventory has now risen to 268,000 homes. The current months’ supply number stands at a healthy 5.2. Given tight existing inventory, more new homes are required to meet housing demand.

The most recent data also indicate a growing share of homes not-yet-started in builder inventory. For example, on a year-over-year basis, homes under construction in inventory have increased by 3.5% over the last year. Completed, ready-to-occupy homes (there are only 63,000) are up 7% since March 2016. In contrast, homes not-yet-started listed in inventory have increased 50%, from 38,000 in March of 2016 to 57,000 last month. This is consistent with growing housing demand.

Median new home sales price (price of the home in the middle of the distribution) rose to $315,100, consistent with inventory broadening. Average home price jumped to $388,200. There was surprising sales growth in the relatively small market of new homes priced $150,000 or below (6% of sales, up from 4% a year ago).

Regionally, there was strong sales growth in the Northeast (25.8%) and the West (16.7%). Flat or declining conditions were reported in the South (1.6%) and the Midwest (-4.5%) where snow and other weather factors had an impact.

Solid builder confidence and ongoing tight inventory conditions suggest continued growth for single-family construction in the months ahead. Pricing remains an open question, given rising construction prices and increasing interest rates. New homes will need to be competitively priced, even as prices for existing homes continue to grow. For this reason, we continue to expect a broadening of the new home inventory base and slight declines in median new home size. On the cost side, increases in lumber costs due to trade duties are yet another factor for builders to manage.