New home sales were down last month, but what about 2015 overall?
Autumn has been a lackluster season thus far for new home sales, which rose 2.0 percent month-to-month but fell 11.5 percent year-over-year in September, ending the month at a seasonally adjusted annual rate of 468,000, according to the Census Bureau.
The bureau’s report was not all doom and gloom. So far in 2015, new home sales are still up 17.6 percent year-to-date, and the new home inventory of 225,000 in September was good for a 5.8-month supply, which is a very healthy level.
The New Nature of New Home Sales
If new home sales are so positive in 2015, why did they decline in September? There are a number of possible explanations, all of which lead back to the prevailing truth of new construction during the housing recovery:
•When broken down by the stage of construction, September’s new home sales were somewhat unusual, with sales of completed and under-construction new homes falling 3.9 and 7.5 percent, respectively; only homes under the “not started” category, meaning new homes that sold before ground even broke, increased in September, and by a hefty 18.8 percent.
•Higher-priced new homes dominate the “not started” field, and a closer examination of new home sales prices better explains why sales in that field rose so much in September. Firstly, both average and median new home prices rose strongly last month. Median price, which totaled $296,900, rose 2.7 percent from August and 13.5 percent from Sept. 2014; meanwhile, average price, which was $364,100, rose 6.2 percent monthly and 14.1 percent yearly.
Those increases were substantially higher than in months past, and for one simple reason – after tapering off somewhat, the luxury new home market roared back to life in September, while entry-level new construction declined; as a result, prices rose and sales, being concentrated in a more exclusive bracket, declined.
Our graph below illustrates how much the luxury new construction market has grown, while the entry-level market has contracted: