We wrote last month about putting the normalizing market into perspective before the new home sales figures were released. With these numbers, we are better equipped to address what happened in the early summer months. New home sales for June and July averaged 632,500, representing an 8% increase over the same period last year. Housing trends are more local than ever; sales in the North dropped dramatically year-over-year, while the Midwest, South, and West all saw double-digit gains. There are pockets of strength and weakness in each region. For example, year-to-date contracts tracked in Zonda slipped in Charlotte compared to last year, while Atlanta saw an uptick.
– Ali Wolf, Director Of Economic Research at Meyers Research
HOME PRICES STILL CLIMBING
June marked just over six years of year-over-year gains in home prices.
This time last year, the index was up 6%, driven by Seattle (13%), Portland (8%), and Dallas (8%). This year, the top three markets are seeing an even stronger clip, with Las Vegas and Seattle 13% higher and San Francisco up 11%.
Of the 20 top markets, Washington, DC, Chicago, and New York have the slowest growth rate ranging from 3% to 4%.
With cost pressures facing consumers from different sectors of the economy and lackluster wage growth, the rate of price increases is expected to temper over the coming year.
AFFORDABILITY IS THE CRITICAL COMPONENT
48% of US households can afford the median priced new home.
The affordability ratio is just below the 4-year average of 49%.
Affordability hit bottom in November 2017, the same month that new home sales topped 700,000 for the first time since 2007.
Affordability is relative. In Phoenix, 51% of households can afford the median priced new home, compared to 47% of local residents in Orlando, 36% in Denver, 29% in Seattle, and 13% in Los Angeles.
HEALTHY PACE OF NEW HOME SALES
Despite affordability challenges, new home sales are 13% higher than last year.
New home sales averaged 646,000 year-to-date in 2018 compared to 604,000 during the same period in 2017, representing a 7% gain.
While the data is still trending positive, the rate of growth in new home sales appears to be slowing. 2017 sales were 10% higher than 2016.
Nearly 20% of all home sales were between $300,000 and $399,999, up from 13% this time last year.
Continued headwinds in the housing market (affordability, higher mortgage rates, tariffs, and other costs) will make it increasingly difficult for the average American to buy new homes.
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