Picture This: US Market for Single-Family Homes Is Struggling

What we know

In July, new home sales decreased by 0.6% to an annual rate of 652,000 units. (Note: The reading was statistically insignificant, with a confidence interval of 15.5%. Sales have zig-zagged within a range of 646,000-708,000 units over the last 10 quarters.)

Inventory, the number of new homes for sale at the end of the month, decreased by 1,000 to 499,000, slightly down from the 18-year-high March reading of 504,000. Out of 499,000 units in inventory, 24% were completed and 22% had not been started. A house enters inventory when a builder obtains a permit with the intention of selling it.

According to a set of US Census Bureau housing numbers released Aug. 25, construction costs, as measured by the Census Construction Cost Index for homes under construction (three-month average), increased by 0.5% in July.

Since February, single-family housing permits have dropped 12%. The South has accounted for 60% of the downturn and the West for 32%. The state permit data, also released Aug. 25, shows that three southern states — Texas, Florida, and North Carolina — account for 47% of the national decrease since February. Two states in the West, California and Arizona, account for another 26%. Also, 35 states have seen reduced single-family permits year to date compared with the same period last year.

Why this matters

The single-family market for new construction is in a downturn. Builders are cutting prices even as their costs are rising, squeezing profits. The three-month average median sales price was $411,400 in July, down 1.8% from a year earlier in nominal dollars and 4.3% after adjusting for inflation. The three-month average price was $501,600, down 0.2% year over year and 2.7% after adjusting for inflation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.