Sales of new homes fell by 14% in November, well below expectations, due to rising prices that analysts say are forcing many prospective buyers out of the picture.
The report from the U.S. Census Bureau said that while sales fell in November, the median price of newly built homes rose by 19% from the same period one year ago. Prices increased even as the supply of new homes rose, mainly because the inventory of existing homes for sale has hit a historic low with barely a two-month supply, experts said.
“A hefty correction appears to be due, but the rapid increases in existing home prices — inventory in that market is only one-third the level in the new home market, relative to sales — is putting extra upward pressure on new home prices,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics in a note to investors.
The price of existing homes is also up, 13% year-over-year, according to data from the National Association of Realtors.
The implication is that new home prices have soared because there are so few homes on the resale market. At the same time, building material costs have soared, and those increases are also being passed on to buyers.
For example the price of lumber is rising steadily again after peaking in spring and falling dramatically in the summer. The current price of lumber is now double what it was at the start of November, CNBC reported. The sharp rise occurred due to the U.S. Commerce Department’s announcement that month it will double import duties on Canadian lumber in 2022.
Home builders have also slowed down sales due to supply chain issues, wary of selling homes they won’t be able to deliver on time. Due to this, Lennar, one of the biggest home builders in the U.S., reported disappointing fourth quarter results earlier this month, blaming “limited entitled land, labor and supply chain constraints.”
Despite the slowdown, and even with real estate experts forecasting slower home sales next year due to rising mortgage rates and higher prices, builders remain bullish. This week it was reported that builder sentiment rose to its highest level since February.
However, market watchers warn that if mortgage rates continue to rise as expected in 2022, buyers would have less purchasing power and be unable to afford what homes there are for sale. That could force builders to lower prices, or at least put limits on how much they raise them.