New-Home Sales Are Up—But Not Enough to Ease the Housing Crunch

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New home sales rose in January 2017, according to a recent report.


Here’s the good news: Sales of newly constructed homes rose in the beginning of the year. The bad news? It wasn’t enough to ease the housing shortage that is frustrating would-be home buyers across the nation.

Buyers purchased about 3.7% more new homes in January than in December, according to a joint report by the U.S. Census Bureau and U.S. Department of Housing and Urban Development. The January purchases were also 5.5% above where they had been a year earlier. (® looked only at the seasonally adjusted numbers, which have been smoothed out over 12 months to account for seasonal fluctuations.)

Sounds good, right? Well, not exactly.

“New-home sales should be growing much more than they are,” says Chief Economist Jonathan Smoke of “We should be seeing twice the volume of new-home sales, and we’re not.”

The reason is that there aren’t enough buyers who can afford the median $312,900 price tag of one of those new homes, often decked out with the latest appliances and finishes. They are nearly 37% more expensive than the median $228,900 price for an existing home in January, according to the most recent National Association of Realtors® data.

Prices on those new homes dipped 1% from December—but were nearly 7.5% higher than in January 2016.

New residences cost more because they’re expensive to build, with increased local red tape, high land and material costs, and a shortage of construction workers. So builders are going to erect only what they’re sure they can sell, Smoke says.

“It effectively limits who can buy the new homes and how many new homes can be built and sold,” Smoke says.

For example, about 55% of the new homes sold in January cost more than $300,000, according to the report.

Just 5% were under $150,000 and only 9% were between $150,000 and $199,999—the price categories that are most likely to fit into the typical first-time buyer’s budget.

The bulk of sales, about 30%, were between $200,000 and $299,999, and 27% were between $300,000 and $399,999.

Most of the home purchases were in the South—about 290,000—where prices are typically lower. The purchases were up 4.3% from December, but down 1% from January 2016.

The West, the country’s most expensive region, saw the second-most sales, at about 151,000. Monthly sales dropped 4.4% but rose 16.2% annually.

In the Midwest, new-home sales were up 14.8% from December and 4.5% from the same month a year earlier. There were about 70,000 sales in the region.

Meanwhile, the Northeast saw the largest surge in home purchases. Sales of the roughly 44,000 homes were up 15.8% from the previous month and rose 22.2% from a year earlier.

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