Faced with few choices on the resale market, homebuyers turned to newly built houses in April, sending sales of these homes higher.
New home sales jumped 4.1% to a seasonally adjusted rate of 683,000 units last month from the downwardly revised March rate of 656,000. That was 11.8% above the year-ago level and above the Bloomberg consensus expectation of 665,000 units for April.
Homebuilders, though, anticipated the sales gain. PulteGroup (PHM) CEO Ryan Marshall said April was performing "at a really strong level" in the company's earnings call last month, while D.R. Horton's (DHI) vice president of investor relations was "pleased with our sales pace in April."
The increase in sales underscores how homebuyers are considering all alternatives to move forward on their purchase plans in a market lacking previously-owned homes. These buyers, too, are getting better deals on mortgage rates — thanks to financing incentives from homebuilders.
Still, builders can’t solve the entire inventory shortage plaguing the market as they continue to face construction headwinds.
Buyers turn to new construction
There were 433,000 new homes for sale by the end of April, up slightly from 432,000 in March. That represents 7.6 months of supply at the current sales rate — down from 7.9 months in March.
The lack of inventory on the existing home side — due largely to the mortgage rate trap — has given builders an edge, Robert Dietz, chief economist for the National Association of Home Builders (NAHB), told Yahoo Finance. In March 33% of homes listed for sale were new homes in various stages of construction, when typically the share from 2000 to 2019 was 12.7%.
“We have less than three months of resale inventory, and with interest rates where they are, [prospective buyers] are gonna have to increasingly look at new construction, because of that lack of recent inventory,” Dietz said.
Builders have also sped up the development of new homes. For instance, construction of new U.S. homes increased in April, reversing March’s drop, according to government data released last week. Housing starts and permits for single-family homes both increased month over month.
The median sales price of new houses sold in April was $420,800, down from $455,800 the month prior.
To further help with affordability, builders have been offering discounts on mortgage rates through their financing arms, a big advantage they have over regular home sellers. For instance, earlier this year Pulte offered a 30-year mortgage rate of 4.25% for qualified homes under construction when the average rate on a 30-year mortgage ranged from 6.09% to 6.73%.
"We’ve had a national mortgage rate buydown program in effect since the beginning of the year. And what we’ve been able to do is use that as another selling tool," PulteGroup CFO Pablo Shaughnessy said last month on the company's earnings call. "And so for some people, it’s 'hey, get my rate as low as you can get it.'"
Inventory challenges remain
Though the sale of new homes increased in April, disruptions in production may still threaten to limit those gains.
"We are continuing to work with our trade partners and suppliers to reduce our construction costs on new home starts," D.R. Horton CFO Bill Wheat said last month on the company's earnings call. "We are making some limited progress in these efforts, but are also still experiencing some cost increases due to the overall inflationary environment."
High construction costs, material supply chain disruptions, and tightening credit conditions on construction loans brought on by recent banking failures in the U.S. are a challenge to new construction, the National Association of Home Builders said.
“The challenge for the industry continues to be the housing shortage,” Dietz said. “It’s a challenge that stretches all the way back to the Great Recession and was supercharged during the COVID pandemic because we saw interest rates go down so low. We need to build more to improve that deficit.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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