If you’re looking to buy a home, finding a newly built one may be tough.
The share of new homes being sold is unusually low, in part because fewer of them are being constructed. It is not likely to get better anytime soon. The Commerce Department reported Thursday that new home sales fell 8.1 percent in June from the previous month to a seasonally adjusted rate of 406,000. That’s down 11.5 percent from a year earlier.
Jed Kolko at Trulia crunched numbers to demonstrate how the share of new home sales has been off the norm for years.
It used to be that one new home was sold for every six previously built homes sold in any given year – a ratio that remained consistent for more than two decades leading up to the housing bubble in 2006.
After the bubble burst, the ratio widened to one to 14. Builders retrenched, and the drop in construction led to fewer new sales. Meanwhile, the abundance of foreclosures and other distressed properties helped boost sales of existing homes.
More recently, as construction has begun to recover and the foreclosure supply has dwindled, the ratio is moving closer to normal. It was about half way back to pre-crisis levels in the first five months of this year, Kolko said.
Here are the ratio for new home sales (compiled by the Census Bureau) to existing home sales (compiled by the National Association of Realtors) through 2013. The Realtors reported this week that sales of existing homes rose 2.6 percent in June from the previous month to a seasonally adjusted annual rate of 5.04 million.
"This ratio gives buyers a sense of what they have to choose from," Kolko said.
Builders aren't building because they don't believe the demand is there yet, said David Crowe, chief economist at the National Association of Home Builders. “They’re not building any more than they know they can sell,” Crowe said.
By the end of June, there were only 47,000 new homes completed and ready to live in across the country, according to the Commerce Department figures below. That's slim pickings for anyone who needs to move into a new house quickly. For some perspective on how small a number that 47,000 number is, it amounts to one year's worth of new home sales in Atlanta, Crowe said.
Builders face many challenges.
Labor is scarce. As the housing crisis dragged on, the workers that builders relied on found jobs in other industries, including the energy sector. It’s been tough luring those workers back, Crowe said. Meanwhile, the workers that hung in there are aging, and the industry is having trouble attracting a younger generation. That has driven labor costs higher.
The cost of building materials also is rising, and putting pressure on profits. The price of softwood lumber is up from a year ago, while the price of gypsum, used for drywall, has climbed 7 percent in the past 12 months. Builders are loath to pass on the full cost to consumers as they struggle to compete with lower-priced existing homes on the market, Crowe said. (Keep in mind that new homes sell at a 20 percent premium to similar previously built ones in the same neighborhood, Kolko points out.)
The median price of a new house sold in June was $273,500, down 3.2 percent from May, the Commerce Department said.
In addition, there's a shortage of available land. It's not easy for builders to get approved for permits in some pockets of the country, especially in land-constrained areas. And the lead time to get an available lot ready for building is quite long -- about two to three years, Crowe said. That helps explain why builders are breaking ground on fewer homes. Housing starts fell 9.3 percent in June to a seasonally adjusted annual pace of 893,000, the government reported this month.