New home sales dropped sharply in June

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Higher prices are creating affordability issues for many would-be buyers

Despite a sizzling housing market, sales of new homes dropped sharply in June, and economists say affordability may have been the main reason. 

The Commerce Department reports that the sale of newly constructed homes fell by 6.6% when compared to May’s results. Sales were down nearly 20% from June 2020. The decline may be linked to the price a buyer has to pay for a new single-family home these days. The median sales price of new houses sold in June 2021, was $361,800.  The average sales price was $428,700.

That’s a lot, especially for a first-time buyer who doesn’t have the equity from a current home to contribute to a down payment. New homes may simply be out of reach for a significant segment of the housing market.

Soaring costs

Despite the push for new “affordable” housing, builders continue to focus on the upper end of the market. Analysts say builders can’t afford to produce entry-level housing because of higher costs. They point to a number of factors, including the soaring price of lumber this year. At one point this year, lumber prices were up 300%. Though they have since moderated, they are still 75% higher than in 2019.

“We also know there are shortages of appliances, labor and affordable lots,” Peter Boockvar, of the Bleakley Advisory Group, told CNBC. “The moderation in home sales is likely a combination of sticker shock and the slowdown in the ability of builders to finish homes because of a variety of delays.”

Because of the high price of new homes, most would-be buyers are looking at existing homes. Those prices have also been surging but are generally lower than prices for new homes. Last week, the National Association of Realtors reported that sales of existing homes rose 1.4% in June after a slight increase in the number of homes on the market. Inventory levels remain low and demand is still strong, so that’s had an effect on prices. 

In June, the NAR said the median existing-home sale price was $363,300, up 23.4% from June 2020. The median home price has now gone up for 112 straight months, posing a challenge for buyers who are finding it difficult to purchase either a new or existing home.

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