Eroding Affordability Puts Damper on New-Home Sales

September 27, 2018

Sales of newly built single-family homes eked out an increase in August, but not enough to impress economists or make up for big shortfalls in housing. Sales for new homes increased 3.5 percent in August to a seasonally adjusted annual rate of 629,000 units, but the uptick was off of significantly revised downwardly reports from June and July, the U.S. Commerce Department reported Wednesday. The revised reports indicate a soft patch overall in new-home sale activity this summer.

Excavator moving earth on housing building site

© Monty Rakusen - Cultura/Getty Images

“Housing affordability has taken a toll on new home sales over the summer, and there could be market volatility in the months ahead as communities grapple with the aftereffects of Hurricane Florence,” says Robert Dietz, chief economist of the National Association of Home Builders. “Still, we expect the overall housing market to grow this year as demand continues to increase among millennials and other newcomers.”

The median new-home sales in August was $320,000, which is 1.9 percent higher than a year ago. But builders have warned that the latest round of U.S. tariffs on China—which were included on several building materials—and labor shortages will likely force builders to raise prices more over the next few months. 

“Housing affordability remains a serious concern and builders must manage supply-side costs and stiff regulatory hurdles to keep prices competitive,” says Randy Noel, the NAHB’s chairman.

Plus, years of under-building by homebuilders has left the U.S. with a shortfall of 4.6 million housing units in the years since 2000, according to Freddie Mac economists..