New Home Housing Stock Drops To A 5-Month Low

In the same week that the National Association of REALTORS reported home resales up 10 percent in September, the U.S. Census Bureau reported similarly strong results for the new construction market. 

After improving 1 percent in August, New Home Sales popped another 7 percent in September.

It's no wonder homebuilder confidence is at a 5-month high.

• Sales volume is higher in 4 of the last 5 months
• New home supply is at a 5-month low
• Buyer foot traffic is on the rise

For home buyers , September's New Home Sales data may foreshadow a shift in builder sales strategies and it's something worth watching.

Recall that in April, the month that the federal homebuyer tax credit contract deadline passed for non-military citizens, sales of new homes was strong as buyers rushed to meet the April 30 cut-off date.

When the month ended, there were 216,000 new homes for sale -- an inventory that would have taken 6 months to sell off in full, given April's sales pace.

In May, however, the month after the tax credit deadline, buyers vanished. As a consequence, total units sold dropped 31 percent to their lowest level in recorded history. Coincidentally, at the end of May, there were still 216,000 units for sale.

By contrast, though, at May's sale pace, the inventory would have needed nine months to sell out.

This is why builders are optimistic. The market for new construction is improving so buyers may have a harder time trying to negotiate for items like free upgrades or sales price reductions. So long as New Home Sales improve, home buyers may find themselves paying more money for less house.

Therefore, if you're in the market for a newly-built home , you may want to move up your time frame. The longer you wait, the more it may cost you.

New Homes Sales Gain in June, But Gains Are Relative

After a down month in May, the sales of newly-built homes appears back on track.

As published by the Census Bureau, June's New Home Sales report showed:

1. A 24 percent sales volume increase from the month prior
2. A 2-month drop in the supply of newly-built home

There are now just 210,000 new homes for sale nationwide.

June's data is a major improvement over May, but it's possible that the true "new home market" may be softer than the statistics suggest.  This is for several reasons.

First, we're comparing June's sales data to the worst month in New Home Sales history.

In May, sales of new homes totaled just 267,000 units nationwide. That's one-quarter fewer sales than in the previous worst month in New Home Sales history. May's sales levels were awful by any measure but June's improvement to 330,000 units remains second-worst sales levels ever posted.

Second, although much improved, June's new home supply of 7.6 months is elevated versus the historical norm near 6.0 months.  The last year has averaged 7.7 months.

For buyers of new homes , this combination of low sales volume and higher-than-normal inventory may be a positive.  It's the main reason why homebuilder confidence is reeling and the downturn has opened some doors for big discounts and deals. Free upgrades and closing cost credits can make a well-priced home even more attractive.

Plus, with mortgage rates at all-time lows and expected to rise, home affordability is may never be better.