August 30, 2018

Midsummer Scenes from the U.S. New Home Market

We're going to tell the story of the United States' new home market primarily through pictures today, where our first chart visualizes the median and average sale prices of new homes in the U.S. from January 2000 through the just-reported preliminary data for July 2018.

Median and Average Monthly U.S. New Home Sale Prices, January 2000 through July 2018

There's quite a bit of month-to-month volatility in the sales price data, but what we find is that both median and average new home sale prices peaked in December 2017, where they have run under those record values in the months since.

In our next picture, we're going to present the trailing twelve month average of the median new home sale price data, which will smooth out some of that month-to-month volatility, which we'll plot against the trailing twelve month average of median household income over the period from December 2000 through July 2018.

U.S. Median New Home Sale Prices vs Median Household Income, Annual: 1999 - 2016 | Monthly: December 2000 - July 2018

Visualizing the data this way, we can see that the trailing year average of median new home sale prices has been largely flat since April 2018, even though median household incomes have been rising.

What that tells us is that the median new home sold in the U.S. is becoming relatively more affordable for the typical American household. We can confirm that observation in our next chart, which shows the ratio of the trailing twelve month averages of median new home sale prices and median household income, where we're showing annual data going back to 1967, and monthly data since December 2000.

Ratio of Trailing Twelve Month Averages 
for Median New Home Sale Prices and Median Household Income, Annual: 1967 to 2016 | Monthly: December 2000 to July 2018

The combination of a flat trend for median new home sale prices with a rising trend median household incomes means that the typical new home sold in the U.S. has become slightly more affordable for the typical income-earning American household. We should also recognize that ratio remains at a highly elevated level, where new homes overall are considerably less affordable than have been historically.

The data we've presented represents national level data for the United States. Real estate is all about location, location, location, so regional markets can experience very different trends. As an example, check out the California Association of Realtors' July 2018 housing market update, where we find that median housing prices in the state (covering both existing and new housing units) have been rising, although with falling sales volumes, as shortage conditions continue to play havoc in that state's real estate markets.