May’s New Home Sales Data Reveals A Shrinking Affordable Market

New single-family home sales dropped 7.3 percent in May from April and fell 6.8 percent from a year ago, according to the latest data from the Census Bureau and the Department of Housing and Urban Development. 

Median sales prices held at $424,900 — flat year over year, up 2 percent from the prior month, according to the new data released on Wednesday — but that top-line stability is misleading.

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A year ago, roughly one in five new homes sold for under $300,000. In May, it was roughly one in seven. The affordable end of the new construction market is contracting.

“The affordable new home is getting harder to build and harder to find, and that’s the real story,” Maor Greenberg, co-founder and CEO of Spacial, told Inman.

What the headline price isn’t telling you

The flat median masks a significant shift in what’s actually selling. Median sales price came in at $424,900, unchanged year over year. But the average sale price hit $540,600, up 5 percent over the same period.

When the average rises but the median stays flat, it means more expensive homes are selling — not that the same homes are getting pricier. The middle of the market hasn’t moved, but the mix of what’s transacting has shifted toward the high end.

Pricier homes are making up a larger share of the mix, pulling the average up, while the median sits still. The composition of the market is shifting, even when the headline price isn’t.

Total inventory rose to 496,000 units in May, and finished homes have taken longer to sell every month this year. It has gone from about three months in January to nearly four months in May. 

On its face, that looks like a buyer’s market building. It isn’t, according to Greenberg.

“Higher inventory normally means oversupply, but look at what’s inside the 496,000,” Greenberg said. “Only 118,000 are finished homes. The rest are not started or are under construction. This isn’t a flood of empty move-in-ready houses; it’s a backlog of homes that builders have already committed to, stacking up against a slower buyer pool.”

At the same time, the pipeline of future supply is thinning. The April data Greenberg references showed groundbreaks slowing, while committed-to homes accumulate. It’s a combination that points toward a supply crunch further out.

The disappearing rung

Greenberg said the disappearance of sub-$300,000 new construction isn’t a mystery. Builders can’t make the economics work at today’s costs for labor, land, and materials, and still price at the entry level. So they build up-market, where margins hold.

“A firm price protects profit margins,” Greenberg said, “but it’s a narrowing business that’s surviving by serving fewer, wealthier buyers and walking away from building entry-level homes.”

That retreat has consequences that compound over time. First-time buyers who were priced out of the existing-home market were supposed to find relief in new construction. That relief isn’t materializing. For a growing share of the market, entry-level homes are not being built.

“For the buyer, the price isn’t high because homes have gotten better or because demand surged,” Greenberg said. “The rung those buyers were reaching for has quietly disappeared.”

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