Rising Cost of Materials Squeezing Some Out of the Market

The U.S. Census Bureau and the U.S. Department of Housing & Urban Development (HUD) have announced that sales of newly built, single-family homes in November 2021 hit a seasonally adjusted annual rate of 744,000. This total comes in at 12.4% above the revised October rate of 662,000, but is 14% below November 2020’s estimate of 865,000.

"New home sales advanced for the third consecutive month in November, as still-low mortgage rates motivated buyers to close before the winter holidays,” said Realtor.com Manager of Economic Research, George Ratiu. “However, October’s sales figures were revised downward, indicating slower-than-expected activity. A total of 744,000 new homes sold during the month, a 12.4% increase from the downwardly-revised October figure, driven by double-digit gains in the Northeast and West.”

HUD and the Census Bureau announced that the median sales price of new houses sold in November 2021 was reported to average $416,900 nationwide, with the average sales price nearly $65,000 higher at $481,700.

“The record-level new-home prices may be pricing out some buyers,” said First American Deputy Chief Economist Odeta Kushi. “In November 2020, 33% of new-home sales were priced below $300,000. A year later, in November 2021, only 14% of new-home sales were priced below $300,000. Demand for new homes remains strong, but construction costs and prices have increased.”

The price of lumber and materials continues to impact the price of new construction, as National Association of Home Builders (NAHB) Chairman Chuck Fowke, a custom home builder based in Tampa, Fla., noted, “builders are still grappling with major supply chain issues and soaring materials costs, which are causing construction delays.”

Ratiu added, “The cost of lumber rose from $573 at the start of November, to $825 per thousand board feet by the end of the month, and moved into the $1,100s per thousand board feet in December, following the Commerce Department’s announcement that it will double the import duties on Canadian softwood in 2022.”

The change in policy is not only driving up construction costs and raising prices across the board, but are impacting the nation’s housing supply, as the seasonally‐adjusted estimate of for sale inventory for new homes for sale at the end of November was 402,000. This total represents a supply of 6.5-months at the current sales rate.

Market volatility from the Omicron variant is forcing mortgage rates downward, as the latest Primary Mortgage Market Survey (PMMS) from Freddie Mac reports rates dropping to 3.05% for the week ending December 23, 2021.

“Borrowing costs remain low, demographic-fueled demand is strong and existing-home inventory remains near record lows, making a new home an attractive option,” said Kushi. “Yet higher construction costs (labor, lumber, materials) are being passed on to buyers, resulting in higher new-home prices.”