New-Home Sales Take a Hit as Prices Rise

Increased building costs, lead times, and unstable supply chains are pushing home prices up and homebuyers out. New-home sales in April dropped 5.9% from March, marking the lowest rate since June 2020. Homebuyer demand remains stable due to low interest rates and a desire for lower-density housing, says the National Association of Home Builders, but the persistent materials and cost issues have pushed prices up 20% compared to one year ago. Lumber prices alone are increasing new construction costs by $36,000 on average, according to NAHB estimates. These costs are pricing out buyers, especially on the lower end of the market.

A year ago, 45% of new home sales were priced below $300,000. In April 2021, only 27% of new home sales were priced below $300,000.

Looking back to the spring of last year, the April 2020 data (570,000 annualized pace) marks the low point of sales for the 2020 recession. The April 2020 rate was 26% lower than the prior peak, pre-recession rate set in January. Sales then mounted a historic surge from April until July, outpacing gains in actual construction. Sales have been above the pace of the post-Great Recession trend since the second half of last year. However, since January the trend has been declining and approaching the prior long-run growth trend (as indicated by the blue dashed line in the graph above).