Sales of new U.S. single-family homes dropped in April as prices surged amid a tight supply of houses, which is threatening to slow the housing market momentum.
New home sales dropped 5.9% to a seasonally adjusted annual rate of 863,000 units last month, the Commerce Department said on Tuesday. March’s sales pace was revised lower to 917,000 units from the previously reported 1.021 million units. Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, at a rate of 970,000 units in April.
New home sales are drawn from a sample of houses selected from building permits and tend to be volatile on a month-to-month basis. Sales surged 48.3% on a year-on-year basis in April. Monthly sales declined in the populous South, the Midwest and Northeast, but rose in the West.
The market for new homes is being boosted by near record low inventory of previously owned houses, especially entry level homes. The COVID-19 pandemic has fueled demand for spacious and more expensive accommodations as millions of Americans work from home and take classes remotely.
But the virus has disrupted labor supply at saw mills and ports, causing shortages of lumber and other raw materials.
That is limiting builders’ ability to ramp up construction of new homes to plug the inventory gap. The input shortages are raising new home prices as well. The National Association of Realtors reported last week that home resales dropped for a third straight month in April as prices surged to a record high because of the tight supply.
The median new house price soared 20.1% from a year earlier to $372,400 in April. Sales were concentrated in the $200,000-$399,000 price range. Sales below the $200,000 price bracket, the sought-after segment of the market, accounted for a mere 2% of transactions last month.
There were 316,000 new homes on the market last month, up from 304,000 in March. At April’s sales pace it would take 4.4 months to clear the supply of houses on the market, up from 4.0 months in March. A six-to-seven-month supply is viewed as a healthy balance between supply and demand.
About 73% of homes sold last month were either under construction or yet to be built.