The numbers: Sales of newly built homes came at a seasonally adjusted annual rate of 841,000 in November, the Census Bureau reported on Wednesday. That was 11% below the revised downward rate of 945,000 in October.
Analysts surveyed by MarketWatch had projected sales of new homes at a seasonally adjusted annual rate of 875,000. However, compared to last year, November’s figures remained high, almost 21% above the previous year.
What happened: Sales of new homes fell across the country, led by a 43% drop in the Midwest.
Inventories increased sharply at the end of the month, around 14% for a 4.1 month supply. A six-month supply of houses is generally considered indicative of a balanced market. The average price of new homes for sale was $ 335,300, down from October, but up 5% from the previous year.
The big picture: The drop in sales in November is a sign that buyers are cooling down in the market, along with the colder climate. “While buyers continue to prefer bigger houses with bigger yards and better quality of life, sharp rising prices are making a difference between their preferences and their wallets,” said George Ratiu, senior economist at Realtor.com.
In fact, the rising cost of new homes points to the challenges that buyers will face as we enter the new year. The increase in selling prices for newly built houses is mainly a reflection of higher construction costs. However, with the supply of existing homes so limited, buyers will face stiff competition for most properties, driving up prices.
Builders will face a challenge in 2021: there is a high demand for more affordable homes, but these homes offer less return for construction companies. “New builders must face rising construction costs and changes in consumer preferences to increase the availability of new affordable homes,” said Ratiu.
What they are saying: “Inventories are tight – down 14.2% year on year in October – and could be a constraint on home sales going forward,” said Rubeela Farooqi, chief economist at High Frequency Economics, in a research note.
Market reaction: Market reaction: The Dow Jones Industrial Average DJIA,
and S&P SPX,
before Wednesday, despite confusion over the fate of the last stimulus package.
Meanwhile, the shares of the residential construction companies PulteGroup PHM,
LGI Homes LGIH,
and Lennar Corp. LEN,
fell 2% after the new home sales report was released.