New homes remain in high demand among home shoppers, but sales are starting to fall as builders slow down inventory. Persistent delays from supply shortages, rising material costs, and labor shortages continue to press on the homebuilding industry as builders frantically try to meet the surging demand for new homes since the pandemic.
Sales of newly built single-family homes in February plunged 18.2% month over month to a 775,000 seasonally adjusted annual rate, the Commerce Department reported Tuesday. This marks the lowest level for new-home sales since last May.
“Though buyer traffic remains strong, some homebuilding activity is being delayed due to material shortages,” says Chuck Fowke, chairman of the National Association of Home Builders. “This is forcing builders and buyers to grapple with rising affordability issues, as soaring lumber prices have added more than $24,000 to the price of a new home.”
Homes available for sale that have not started construction surged 67% over the last year. That is an indicator of increasing delays and higher costs associated with construction, the NAHB notes.
“While rising material costs and other supply-side issues are causing delays for some projects, other factors contributing to the slowdown include the winter storms in areas like Texas andrising mortgage rates, which are up more than 30 basis points over the past five weeks,” says Robert Dietz, the NAHB’s chief economist.
New-home prices also continue to rise due to material costs, notably from increases in lumber prices. The median sales price for a newly built home was $349,400 in February, a 5.3% increase compared to a year ago.