Sales of New Houses Sag, Inventory Piles Up to Highest since 2008, as Mortgage Rates Spike. Homebuilder Costs Explode

Builders have abandoned the market below $300,000.

By Wolf Richter for WOLF STREET.

Sales of new single-family houses in March, in terms of the seasonally adjusted annual rate, fell 8.6% for the month and by 12.6% year-over-year to a rate of 772,000 houses, according to data from the Census Bureau today. Sales remain far below the boom years of 2002-2006.

Sales of new houses can serve as an early indicator of the housing market as the data are registered when sales contracts are signed, not when deals actually close, unlike sales of existing homes.

Sales by stage of construction: Houses were construction had not started yet accounted for 33% of the sales. Houses that were under construction accounted for 43%. And completed houses accounted for 23% of the sales.

The inventory of new single-family houses for sale rose to 407,000 houses in March (seasonally adjusted), the largest unsold inventory since August 2008, up by 52% from a year ago. This amounts to 6.4 months of supply at the current rate of sales.

Homebuyers faced a historic spike in mortgage rates, on top of the historic spike in prices, a toxic mix that made purchases increasingly difficult or impossible for many buyers, and took them out of the market.

The average 30-year fixed mortgage rate jumped from 4.1% at the beginning of March to 4.8% at the end of the month, up by 1.5 percentage points a year earlier, according to the Mortgage Bankers Association. Since then, mortgage rates have pierced the 5% level:

Homebuilders faced a historic spike in costs, amid shortages of materials, supplies, and labor that have been hobbling construction projects and stalled deliveries of completed houses.

Construction costs of single-family houses – excluding the cost of land and other non-construction costs – spiked by 1.5% in March and by 17.3% year-over-year, according to separate data from the Census Bureau today. This was the fourth month in a row of 17% cost spikes year-over-year, the worst in the data going back to 1964. The prior record was the 14.6% spike in July 1979. And it was the 11th month in a row of double-digit spikes:

The median price of single-family houses sold is heavily skewed by the change in mix: The bottom has fallen out of the low end where now very few houses are sold. In March, only 15% of the houses sold for below $300,000. In March 2021, still 35% of the houses sold for below $300,000.

Now the bulge brackets are in the range between $300,000 and $500,000, accounting for nearly half the house sales in March.

The upward shift in price is a result of price increases and the shift by builders to go where the money is. And this caused the median price in March to jump by 21% year-over-year to $436,700. The median price means that half the homes sold were priced at over $436,700.

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