Home demand has been skyrocketing throughout the pandemic as mortgage rates have been at or near historic lows. But things might finally start to cool off.

In June, new home sales fell to their lowest level since April 2020, according to the Census Bureau. To be clear, new home sales refer to newly built homes, not existing ones that were previously occupied as of June 2020. That is significant insofar as housing market experts have actually expected a 3.4% increase in new home sales.

Start your journey to financial success with a bang

Get free access to the select products we use to meet our money goals. These fully vetted tips could be the solution to increasing your credit score, investing more profitably, building an emergency fund, and much more.

By submitting your email address, you consent to us sending you money tips along with products and services that we think may interest you. You can unsubscribe at any time. Please read our privacy policy and terms and conditions.

Why did new home sales decline?

A 6.3-month supply of new apartments was available in June. That is more than the 5.5 month supply in May. In contrast, last autumn there was only a 3.5-month supply of new buildings.

But newly built houses cost more than ever as builders grapple with rising material costs and a shortage of available labor. In June, the median price of a newly built home increased by 6% compared to the previous year. That's on top of the 15-20% annual growth we've seen in the previous months.

While lumber prices have fallen since the surge earlier this year, many home builders are still trying to offset their costs from the time when supplies were more expensive. And many are forced to throw workers higher wages in order to get them to take a job – a problem that has been noted in many industries, including restaurants.

The final result? For many buyers today, the new building is no longer financially achievable. Those who buy a newly built home require a higher down payment and a more expensive mortgage. And while mortgage rates are low today, they may not be low enough to make up for higher purchase prices.

Of course, the fact that buyers are pushing back and not paying too much for homes could be taken as a sign that demand is finally falling. This is good news at a time when so many buyers are struggling to buy homes because of a lack of inventory.

The basic laws of supply and demand tell us that prices tend to follow suit when demand falls. And so, June new home sales could be the start of a monthly trend.

Now, cost may not be the only thing stopping buyers from buying newly built homes. Some fear that today's homes are not being built with the same high quality materials that are used in older homes. At a time when many common supplies have been hard to come by, it's easy to understand why buyers are concerned that builders are sacrificing where they can.

Either way, it will be interesting to see if new home sales continue to decline. If so, it could pave the way to cheaper purchase options for potential homeowners later in the year.

source https://seapointrealtors.com/2021/08/01/new-home-sales-reach-lowest-level-since-start-of-pandemic/

 This free site is ad-supported. Learn more
​