Construction worker measuring at new home site.

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As New-Home Sales Rise, Builders Watch Their Prices

August 25, 2021

Sales of newly built single-family homes increased slightly in July as material costs to build continue to surge.

Single-family new-home sales rose by 1% in July to a seasonally adjusted annual rate of 708,000, the Commerce Department reported Tuesday.

“New-home sales have leveled off this summer after a period of rising costs and strong demand,” said Chuck Fowke, chairman of the National Association of Home Builders.

New-home sales were down 27% in July compared to a year earlier. Strong buyer demand persists, but builders say the rising costs of material, labor, and lots have stretched out timetables and prompted them to limit their projects. “Builders will need to watch local home prices relative to incomes, given recent gains in building materials and other construction costs,” said Robert Dietz, the NAHB’s chief economist.

The median sales price of a new home in July was $390,500, an 18.4% increase compared to a year earlier. Builders say the higher prices are due to the rise in development costs, including materials, that are being passed along to home buyers. Pricing homes has become problematic for builders as they face timelines of eight- to nine-month builds with material costs constantly on the rise. Read more: Flooded With New Orders, Builders Limit Sales

A growing share of homes are under contract but have not started construction yet, the NAHB said. Nearly 30% of new-home inventory consists of homes that have not started construction, compared to 20% a year earlier.

New-home sales increased in all major regions of the U.S. in July, with the highest increases in the Midwest (up 10.6% annually) and the South (up 9.1%). The Northeast posted a 7.5% year-over-year increase in new-home sales in July, and the West eked out a 0.5% uptick.