New Home Sales Ebb. Is There Really 6 Months Worth of Inventory?

In today's release from the Census Bureau, New Home Sales fell 4.5% in January to an annual pace of 801k units.  Economists were already expecting a decline, albeit to a slightly higher level of 806k from December's 839k (revised up from 811k reported last month).  

All of the above numbers are exceedingly acceptable at face value.  They leave new home sales at very strong levels relative to the past 15 years.  Only last month and the initial post-pandemic surge saw anything better.

Digging a bit deeper, we find the Census Bureaus inventory statistic--"months of supply"--at a puzzlingly high 6.1, up from 5.6 months in the previous report.  Almost anyone in the housing/mortgage market (and especially those who've been house hunting) would have the same incredulous reaction: something to the effect of "there's no way there's a 6+ month supply of new homes on the market!"

As you might expect, there aren't actually 6.1 months of new homes on the market--at least not that could be easily sold right now.  Those homes are technically in the pipeline, but for a record number of them, construction has yet to begin.

Other Highlights:

• Regionally, New Home Sales were
  • 10.7% lower in the Northeast
  • 3.7% lower in the Midwest
  • 7.4% lower in the South
  • 1.2% higher in the West
• Nationally, the percentage of homes in each price bracket were as follows
  • 1% .... 150-199k
  • 8% .... 200-299k
  • 35%....300-399k
  • 17%....400-499k
  • 29%....500-749k
  • 10%....750k and up
• The median sales price was $423,300 and the average was $496,900.  
• Median prices are up only 13.4% year-over-year (far less than the 18%+ from home price indices), but as always, this is a misleading statistic because it doesn't account for changes in home size.  Prices in the mainstream indices are based on a "repeat sales" approach, thus only comparing the price of a home to the price of the same home the last time it was sold.