Summary
Builder Incentives Boost Sales
- New home sales improved 2.3% in December to a 616K annual pace. The increase comes on the heals of downward revisions over the prior three months, taking some shine out of the recent upturn. That said, builder incentives look to be bolstering new home sales, which are gradually rising from the low point reached in September.
- Despite the recent positive trend, new home sales were down 26.6% year-over-year in December, which echoes the 25.0% drop in single-family housing starts.
- Sales in the West and Northeast were the biggest drag on overall new home sales over the month, sliding 15.3% and 19.4% respectively. These regional declines were countered by a 6.5% rise in the South and a 35.2% surge in the Midwest.
- The not-seasonally-adjusted median sales price dipped 3.7% over the month to $442,100, the second straight decline. Despite the slip, median home prices closed out 2022 7.8% above the $410,000 median home price one year ago.
- Homes priced between $300K and $399K comprised one third of all new home sales in December, while 30% of sales occurred in the $500K to $749K price range. The share of sales over $750K fell to 9% in December from 15% in the prior month.
- The number of new homes for sale at the end of December was essentially unchanged, remaining at 461K.
- The improved pace of sales resulted in a slight decline in months supply, which fell to 9.0 months from 9.2 months in November. Months supply rose to as high as 10.1 months in both July and September 2022. Still-elevated inventory levels are likely to lead to further easing in new home price prices.
- Sales of homes that have not yet been started climbed 35% over the month, while completed home sales dropped 10%.
New Home Sales Cap 2022 With Small Improvement
New home sales rose 2.3% during December, the third straight monthly improvement. Significant downward revisions to the past three months of data take some shine off the recent upturn, however. The pace of home sales was revised down by 38,000 in November, 7,000 in October and 9,000 in September. With these revisions, the pace of home sales appears to have reached a low-point in September 2022 and has been gradually improving ever since.
The positive trend appears owed to builders enticing buyers back off the sidelines with rate-buy downs, price discounts and other incentives. The not seasonally adjusted median sale price fell 3.7% during the month to $442,100. Median prices remain up 7.8% over the past year, a slight shift up compared to November's 6.7% annual pace. New home price appreciation has softened over the past several months, but not quite as rapidly as median existing single-family home prices, which were up 2.0% year-over-year in December. This discrepancy is a sign that builders are turning to price reductions as a last resort, preferring instead to utilize other incentives to bolster sales.
The number of new homes for sale at the end of December was essentially unchanged, remaining at 461K. The improved pace of sales resulted in a slight decline in months supply, which fell to 9.0 months from 9.2 months in November. Months supply rose to as high as 10.1 months in both July and September 2022. Still-elevated inventory levels are likely to lead to further easing in new home prices.
There was significant regional variation in terms of sales activity during December. Sales in the West and Northeast were the biggest drag on overall new home sales over the month, sliding 15.3% and 19.4% respectively. These regional declines were countered by a 6.5% rise in the South and a 35.2% surge in the Midwest.
Residential Sector Remains A Substantial Drag on Economic Growth
The BEA reported this morning that real GDP rose 2.9% in Q4-2022. Despite the solid upturn, residential fixed investment plunged 26.7% during the quarter, a decline which subtracted 1.3 percentage points off of the headline growth rate. Residential investment has now been a drag on real GDP growth for seven consecutive quarters.
Digging deeper, the underlying details show that the drop in residential investment was generally widespread, although real new single-family spending posted the largest drop (-38.5%). By contrast, multifamily spending rose by 17.3% during the quarter. Other structures, which includes improvement spending, fell 23.1%. After peaking at 4.8% in Q1-2022, the residential fixed investment share of GDP was 4.0% in Q4, down from 4.3% in Q3 and 4.7% a year ago and running well below the 1955-2005 average of 4.8%.