New Home Supply Shrinks 13 Percent In One Year; Prices Rising

Homebuilder confidence is soaring -- and for good reason. In June, despite a drop in units sold on a seasonally-adjusted, annualized basis, the market for new construction remains strong nationwide.


The Census Bureau reports that 350,000 new homes were sold in June 2012, an 8 percent reduction as compared to May. A "new home" is a home that has not been previously occupied; one that's considered "new construction".


The tally fell short of Wall Street expectations but can still be considered strong.

This is because, in addition to releasing June's New Home Sales data, the Census Bureau revised higher the previously-released results for March, April and May by a collective 33,000 units.

After the prior month revisions, June's results are now the weakest since February, and the strongest of the preceding 21 months. The housing market recovery continues.


Sales of newly-built homes have climbed 15 percent since June 2011. Buyers are buying faster than builders can build, and its contributing to a shrinking national home inventory.

At the end of last month, there were just 144,000 new homes for sale nationwide. This is 13 percent fewer homes than were for sale one year ago. As a result, at the current pace of sales nationwide, the complete stock of new homes would "sell out" in 4.9 months.

This number is noteworthy because a 6.0-month supply of homes is believed to indicate a market in balance. When new home supplies fall below 6.0 months, it suggests a "seller's market", one in which home builders have pricing power over potential home buyers, plus excess leverage in negotiations.

In a seller's market, builders are less likely to offer price reductions and/or free upgrades and it's been a seller's market since October 2011. Not surprisingly, since October 2011, the average new home sale price is higher by 6%.


With mortgage rates at all-time lows and rents exceeding mortgage payments in many U.S. cities, first-time home buyers are expected to power the housing market through the rest of 2012 and into 2013. It helps that there are a bevy of low-downpayment mortgage programs, too.

For example, the FHA has a 3.5% downpayment program for purchases, and the VA and USDA both make "no money down" available to qualified buyers. Fannie Mae and Freddie Mac have downpayment options, too -- you only have to ask about them.

If you're looking at new construction, then, and have just a small amount for downpayment, take a look at today's mortgage rates and see for what you'll qualify. Purchasing power is high because of low mortgage rates. You may be surprised at how much home you can afford.

Courtesy of: Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage.
Email Dan at or click to get a free, no-obligation rate quote.