Rapid Reaction: December New Home Sales

• December new home sales fell sharply from November, down 9.3 percent to 625,000 (SAAR), according to the U.S. Census Bureau. November's initially reported data was also revised substantially downward. An estimated 608,000 new homes were sold in 2017, 8.3 percent more than 2016 (561,000).
• Inventory of new homes for sale was up 3.9 percent from November and 15.2 percent from a year ago, the biggest gain in overall inventory levels since April 2006. The large majority (91 percent) of the gain in inventory was driven by homes that are for sale, but for which construction has not yet begun.
• The median price (non-seasonally adjusted) of new homes sold in December was $335,400.

Today's numbers are not the way we would have liked to see 2017 end for the new home sales market, but nevertheless the year overall showed meaningful progress. New home sales activity began to move noticeably upward toward the end of 2017, ending the year at levels comfortably above where they were when the year began. And despite the monthly drop in sales, inventory of new homes available for sale rose by the largest amount since April 2006, an encouraging sign. Still, it has proven to be a two-step-forward, one-step-back process in getting building activity to where it really needs to be. Big gains in one month are often revised down in the next, and progress has been frustratingly incremental instead of really breaking through. Prior to the recession, new home sales levels regularly exceeded 1 million or more per year. Those are the kind of levels we need to get back to in order to make a meaningful dent in the inventory crunch facing the market and to ease some of the pressure off of beleaguered home buyers. And rather than the speculation that fueled last decade’s boom and bust, building at that level today would be more squarely addressing true, fundamental demand in a healthy way. Builders are certainly aware of this demand, and are doing what they can to meet it – but rising land, labor and lumber prices aren’t helping. It may not look like much progress these net few months, but we’re very slowly getting there.