New Home Sales On The Decline In December: Sign Of Trouble?


According to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, December new-home sales dropped a little over 9%, for a total of over 625,000. Although that might sound concerning to some real estate forecasters, the statistics show that for all of 2017, as of December new-home sales were still up over 14%.

What many analysts believe is that although there was a slowdown in new-home sales, that should be expected. Due to the increasingly high rate in November, there necessarily had to be a slowdown in the market. Because of the inventory shortage of new homes, those who weren’t able to find the homes of their dreams extended their search; this means the biggest boom appeared to happen in November. That led to a slowdown over the holidays, which is typically expected in the housing industry anyway.

According to leading financial experts, since so many houses closed in the months of October and November, there weren’t many buyers left looking once the holiday season got underway. The region that experienced the greatest increase in home sales was the South, but even it was down an estimated 9.8% from November in December, following the same trend as the rest of the nation.

In the South, new-home sales finished out the year with a 15.7% increase from the previous year, which is substantially significant. The next area to enjoy a peak in new-home sales was the West with 190,000; although down by 9.5% from November, they had a recorded 18.8% increase from the year before. The Midwest and the Northeast regions had fewer sales.

According to the latest statistics released by the National Association of Realtors, new-home prices were also up slightly in December, with the average sale being close to $335,000; this was up 0.15% from November and as much as 2.6% from the previous year. When it comes to new homes, the problem continues to be affordability. Due to the rising material costs and construction labor shortage, many of those who are in the market for a new home simply can’t get financing or don’t have the income to afford the house they want in the neighborhood they desire.

The increase in all costs of construction is likely contributing to the slowdown in sales. Due to stricter immigration laws limiting construction laborers in some regions, the rise in material costs and financing hurdles that were created well before this year, buying a new home is not an easy thing to do – either financially or logistically.

So will the trend continue?

The economy shows no sign of slowing at this point but that can either be a good thing or a bad for the new-home sales market. Higher wages and being able to save more of your income through tax breaks might make more new homebuyers eligible to get the loans they desire. But if material costs continue to rise and the shortage of labor persists, then it will just drive new- home sale prices higher and potentially lead to a standstill in the market.

The good news is that last year the market for new home sales was up by double digits almost everywhere in the United States, with some areas experiencing bigger increases than others, and none showing a decline for the first time in a long time.

If you are in the market for a new home, right now might be the time to dive in and try to get the financing. The reality is that if new-home construction starts to slow, inventory is going to be tight, which will drive the prices out of many homebuyers’ ranges. Getting started now, even if there is a dip in the market, will ensure that you aren’t left paying more for your new home with fewer options to choose from and higher financing costs to obtain the home you want. With a boom in the economy, there are always both positives and negatives for home sales, so you sometimes have to take the good with the bad.