New-Home Sales Are Skewing to Lower Price Points
March 18, 2019
Home builders are lowering their prices to appeal to a growing number of home shoppers. In January, 66 percent of new single-family homes were priced between $200,000 and $400,000, compared with 22 percent of homes that were in the $400,000 to $750,000 range, according to U.S. Commerce Department data. A year ago, 51 percent of homes sold in the $200,000 to $400,000 range, while 29 percent sold in the $400,000 to $750,000 price points.
“These numbers indicate that builders who can produce housing at affordable price points in markets across the nation will be able to meet this sales demand that is generated by healthy household formations and solid job and wage growth,” says Robert Dietz, chief economist at the National Association of Home Builders.
For the last few years, builders have mostly targeted the higher price points as lot and labor shortages and the rising costs of building materials have threatened their profit margins. But the latest housing data show that builders are slowing their production in the higher price brackets in response to buyer demand, for less expensive homes, the NAHB notes.
A budding bright spot: The townhome market—which tends to cater to lower price points—is outperforming other building sectors and adding more entry-level housing to the market. Townhouse construction rose more than five times as fast as the overall single-family construction sector in 2018, the NAHB reports.
“The long-run prospects of townhouse construction are positive given large numbers of home buyers looking for medium density residential neighborhoods, such as urban villages that offer walkable environments and other amenities,” the NAHB recently noted on its Eye on Housing blog.
While builders concentrate on building homes at lower price points, overall sales of new homes are are declining. Sales of newly built single-family homes dropped 6.9 percent to a seasonally adjusted annual rate of 607,000 units in January, according to new data released by the Commerce Department on Thursday. But new-home sales are up 2.3 percent over a year ago and are now at their highest level since the Great Recession.
"Declines in mortgage rates brought buyers back into the market at the end of 2018 and moving into the new year," said NAHB Chairman Greg Ugalde. "After a challenging period last fall, builders expect a solid spring homebuying season."
New-home inventory increased to 336,000 in January, and the median sales price was $317,200.
Across the country, new-home sales rose by the highest amount in the West in January, increasing 27.8 percent month over month. Meanwhile, new-home sales dropped 28.6 percent in the Midwest, 15.1 percent in the South, and 11.4 percent in the Northeast.
“New Home Sales Distribution Highlights Affordability Opportunity,” National Association of Home Builders’ Eye on Housing blog (March 14, 2019)
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Updated: April 19, 2019