December New Home Sales: Overcoming Obstacles

• New home sales totaled 811,000 (SAAR) in December 2021, up 11.9% from November but down 14% from December 2020, according to the U.S. Census Bureau.
• The median sales price of new houses sold in December 2021 was $377,700.
• The seasonally‐adjusted estimate of new houses for sale at the end of December was 403,000, a supply of 6.0 months at the current sales rate.

New home sales comfortably exceeded expectations in December and rose in each of the final two months of 2021, a hopeful sign that builders are starting to overcome supply chain disruptions. But sales of new homes ended the year down 14% from December 2020, the biggest calendar-year drop since 2008, when residential construction was in freefall in the wake of the Great Recession. But that's where most similarities end, and the reasons behind 2021’s relative downturn are different from those that caused the housing crash. A sudden collapse in demand led to the dramatic decrease in homebuilding 15 years ago, whereas last year’s fall off was due to problems with hiring workers and sourcing raw materials. This distinction is important because the lack of demand during the Great Recession resulted in a drastic decline in home values that bankrupted many homebuilders and caused a long-run deficit in residential construction that continues to plague the housing market today. Last year’s shortage of construction materials and workers, on the other hand, is a temporary problem that the industry should be able to work through this year. If so, new home sales will reverse 2021’s slide and end 2022 above where the year started.