New Home Sales Dip in April Due to Cost Concerns

Housing affordability is becoming problematic as construction materials become more and more expensive.

According to the latest report from the U.S. Census Bureau, new home sales fell 5.9 percent from March to April 2021. Despite that dropoff, demand for housing remains high, with new home sales nearly 50 percent higher than they were at this time last year.

Market experts note that this month-to-month decline in sales is likely a sign that builders are being more cautious in response to the rising costs of building materials.

“Builders are reluctant to sign sales contracts for houses they haven’t broken ground on because of the possibility that costs will continue to rise, nibbling into profits,” said Holden Lewis, housing and mortgage expert at personal finance website NerdWallet. “So some builders are waiting at least until houses are framed before accepting buyers’ offers. This limits the number of home sales, even as demand remains strong.”

Several construction associations, including the Associated General Contractors of America and the National Association of Home Builders, recently requested that lawmakers take legislative action to slow the rapidly ballooning cost of construction materials like lumber and steel.

“The Biden administration must address these unprecedented lumber and steel costs and broader supply-chain woes or risk undermining the economic recovery,” said Stephen E. Sandherr, chief executive officer of the AGC.

NAHB chairman Chuck Fowke also called for federal intervention.

“A growing number of builders are limiting sales in order to manage supply chains, including access and cost factors associated with lumber, appliances, and other building materials,” he said. “Policymakers need to find ways to improve the supply chain, by facilitating more domestic production, or in cases where that cannot be done, suspending tariffs to allow for more imports.”

High demand can only sustain the market for so long before affordability concerns catch up with builders and buyers alike. Until building material costs go down, housing costs will continue to rise. That’s bad news for potential buyers.

“After a period of builders holding back price increases, new home prices were 20 percent higher year-over-year per the April Census data,” said Robert Dietz, chief economist for the NAHB. “Higher prices have priced out buyers, particularly at the lower end of the market. A year ago, 45 percent of new home sales were priced below $300,000. In April 2021, only 27 percent of new home sales were priced below $300,000.”

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