Home Builders Provide Inventory Shortage Relief

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Sales of new United States homes decreased by 9.4 percent in July, representing the strongest one-month decreased in close to a year. But the decrease followed strong sales in previous months, and sales so far this year are outperforming last year’s.

The Commerce Department said Wednesday that new-home sales fell to a seasonally adjusted annual rate of 571,000 in July, down from 630,000 in June. Last month’s figure was the weakest since December.

Even so, sales in the first seven months of the year are 9.2 percent higher than in the same period last year. More buyers are turning to newly built houses as the supply of existing homes for sale has fallen consistently.

The housing market overall is healthy for the most part, but sales have stumbled this summer as a supply crunch has elevated average home prices nationwide. The increasing price levels have made homes too expensive for a number of potential buyers, even as healthy hiring has lowered the unemployment rate to a 16-year low of 4.3 percent.

Home builders are ramping up the supply of new homes, providing some much needed relief. The number of newly built homes available is still below historical levels but the supply of new homes for sale increased by 1.5 percent in July from June to 276,000. That’s 16.5 percent higher than a year earlier.

That level is considered enough to last 5.8 months at the current sales pace – near the 6 months that is typical in a healthy residential housing market.

By contrast, the number of existing homes for sale decreased by 7.1 percent in June in comparison to the numbers from a year earlier. The larger supply of new homes has kept prices from rising as much as in the market for existing houses. A typical new home sold for $313,700 in July – below the $316,200 average price for all of last year.

Prices for existing homes increased by 5.6 percent in May when compared to the previous year, according to the latest data available via the S&P Case-Shiller home price index.