Builders ‘changing what they sell’ to combat lagging sales
Prices of new homes continued to fall in July as consumer demand remained weak, with Census Bureau data showing a 10.5% month-over-month drop in sales.
Low demand for new homes persisted last month, making this a difficult time to be a home builder while opportunities emerge for potential homebuyers.
New home sales fall: New home sales were down 10.5% in July compared to June and down 6.3% compared to a year ago, according to the U.S. Census Bureau. The seasonally adjusted annual rate of new home sales came in at 607,000 — the lowest since January.
While the Northeast and the West posted month-over-month increases, the bureau's Aug. 25 report showed that big drops in the Midwest and in the South pushed the national numbers down.
Price drops ongoing: New home prices have meanwhile continued to decline. The national median new home sales price was $393,800 in July, down from $403,100 in June and down slightly from $397,300 a year earlier. July's price level marks the lowest in five years, according to Sam Williamson, senior economist at First American.
The gap between the median prices of new and existing homes has now grown to $40,300 — the widest since 1999. "It's a great time to be buying a newly-built home, it's a tougher time to be building and selling them," said Joel Berner, senior economist at Realtor.com. "In a low-turn housing market, new construction remains one of the few places where buyers may still find room to maneuver."
Builder approach shifting: "Builders are not just cutting prices. They are changing what they sell," Williamson said, noting that builders are opting for smaller, lower-priced units to better fit today's budgets as would-be buyers continue struggling with affordability challenges.
This shift marks a recognition that many buyers still feel priced out as mortgage rates hover around the highest levels of the past year. Persistently elevated mortgage rates in particular are "making it harder for prospective buyers to make the monthly payment math work," Williamson said.
In addition to weak demand, builders continue facing higher costs associated with tariffs and labor shortages, which helps explain why new home starts are also falling, according to Berner.
Buyers have more choices: In a positive sign for potential buyers, July's slowdown in sales boosted the nation's inventory of new homes to 9.6 months, up from 8.5 months in June.
Combined with existing homes, the national housing supply was estimated to be about 5.3 months, according to the National Association of Home Builders — the highest level since 2014.