New home sales plunged 6.6% in June to a rate of 676,000 units sold, marking the third straight month of falling sales. May and April sales were revised even lower. Total sales are running 19% below year-ago levels, the first time the annual comparison has turned negative since the pandemic began. A period of bidding wars and skyrocketing home prices has left many would-be buyers discouraged. New home sales lead existing home sales. Even with record-low mortgage rates, housing investment overall will be a drag on growth in the second and third quarters.
Builders have been experiencing significant hurdles to completing projects, including material shortages and delays. The supply of not-yet-built homes available for sale has risen 85% compared to a year ago. Even with the overall new home supply sitting at 6.3 months (which is considered the ideal pace to clear the market), it is not enough for first-time buyers to enter the market.
Existing home sales, which reflect contracts signed during the last two months, grew 1.4% in June after four straight months of declines. The gains were broad-based, except for the South, where sales fell flat.
Inventories remain tight at a 2.6 months’ supply, which contributed to the median home price rising at the fastest pace in 22 years to a 23.4% annual rate. Sales of homes above $750K doubled from a year ago. Sales of homes listed for less than $250,000 are down 16% from a year ago. More listings have been trickling on line but the lack of availability of entry-level homes continues to frustrate buyers. Many searching at the lower end of the market have given up and remained renters, for now.
Over the past three months, all-cash sales reached a quarter of all sales, the highest proportion since 2016. These are not just investors, but also vacation home buyers. According to the National Association of Realtors, over half of buyers with mortgages put down a 20% or higher down payment in June. Many first-time buyers cannot afford to do that. Mortgage applications to purchase a home have been softening from early 2021 highs to levels prior to the pandemic. Those who already own homes have seen their wealth rise significantly over this past year, widening the gap between owners and renters.
Homebuyers, especially first-time buyers, have been sidelined by price rises that have outpaced income growth. Builders, faced with significant supply constraints for everything from land to labor to materials, have been unable to match the pace of demand during the first half of 2021; many have paused projects to wait out shortages. More supply coming to the market in the second half of the year should help ease regional price pressures. The housing market will continue to soften as frustrated buyers are sidelined by the shortage of affordable homes.
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