New home sales represent a significant portion of all residential sales nationwide, usually around 10-12%. The new construction industry is also a significant part of the national economy, with residential investment accounting for 3-5% of GDP according to the National Association of Homebuilders. Residential investment includes construction of new single family and multifamily structures, residential remodeling, production of manufactured homes, and brokers’ fees. When adding consumption spending on housing services (owner’s imputed monthly principle, interest, escrow, and utilities payments, and rent and utilities paid by renters), which account for roughly 12-13% of GDP. Combined, the construction of new homes represents about 15-18% of GDP, a significant portion of overall economic activity. While many new home projects started before the pandemic are likely to continue to completion, the wildcard is in the months ahead as builders large and small react to the fast-changing economic conditions brought upon by the pandemic.
Sales of new single family homes rose unexpectedly in April. However, the gain was slight and could easily reverse course next month amid the growing economic impact of the coronavirus pandemic.
According to the Commerce Department, new home sales increased 0.6% to a seasonally adjusted annual rate of 623,000 in April. The gain is on the heels of a 13.7% decline in March, and the March numbers were revised downward from 627,000 to 619,000.
Economists polled by Reuters predicted a decline of 21.9% with the annual rate falling to 480,000 units.
Seasonally unadjusted data reflects a decline of 7.8% year-over-year (Y/Y) from 64,000 in April 2019 to 59,000 in April 2020. The median sales price also declined Y/Y, falling 8.6% from $339,000 to $309,900. On the supply side, new construction inventory declined slightly from 335,000 to 325,000 listings.
In Alabama, April new construction sales were also somewhat surprising, increasing 15.5% year-over-year from 705 to 814 closed transactions. The median sales price declined 2.7% from the prior month and 1% from April 2019, but is up 2.3% year-to-date. The sales cycle shortened as average days on market dropped from 103 to 90, and inventory remained tight as listings declined 4.3% Y/Y. Of the 814 new homes sold in April, 540 (66%) were in three metro areas: Huntsville (221), Birmingham (183), and Baldwin County (136).