Sometimes the cost is too steep. This may become increasingly true for buyers looking to purchase newly-built single-family homes.

These homes were sold at a 14% lower rate than analysts expected in November, with sales down by 14% over a previous year. According to U.S. Census Bureau data, October sales were down 14% from a year ago.  

Despite slower sales and higher mortgage rates, November saw a nearly 19% increase in the median sale price for newly constructed homes compared to November 2020. Even though there was more inventory, the median price of newly built homes sold in November rose nearly 19% from November 2020. According to observers, rising inventory should lead to lower prices. Prices for newly constructed homes continue to rise despite historically low inventories. What is the limit of what is permissible?

“A hefty correction appears to be due, but the rapid increases in existing home prices — inventory in that market is only one-third the level in the new home market, relative to sales — is putting extra upward pressure on new home prices,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics in a note to investors. 

According to the National Association of Realtors, November saw a small increase in prices for homes that were already sold, just 13% more than in October. This is a slight decrease from the October annual gain.

Because inventory is so low for homes currently being sold, prices have risen.

Due to the large number of homes that are being sold, the median is also increasing. This may be due in part to the higher prices of these homes. Even repeat sale price indexes, like S&P Case-Shiller show prices up close to 20% from a year ago. 

The rising cost of materials for builders is driving up the prices for new homes. This is partly why they are selling so many. These builders are passing these costs on to buyers.

Lumber prices are now rising after falling sharply over the summer and peaking in spring last year. The price of lumber is doubled since November when it rose to a record high. This was after the U.S. Commerce Department declared that it will double its import duties for Canadian lumber by 2022. 

The slowdown in sales by homebuilders is also due to supply chain problems. They don’t want a house that can’t be delivered on time. Builder LennarReporting disappointing quarterly numbers this month earlier in the month. They cited “continued housing shortage driven by limited entitled land and labor, as well as supply chain constraints.”  

The Realtors expect lower sales of existing homes next year because of rising mortgage rates. Builders, however, are bullish. The December builder sentiment was at its highest point of the year (tied with February). The possibility exists that sales figures will be revised. Census surveyThis allows for a great margin of error. 

We wouldn’t be surprised to see the November and October numbers significantly revised. Shepherdson said that the rise in mortgage applications is an indication of the state of the housing market’s demand. 

According to the Mortgage Bankers Association, mortgage applications for a new home have dropped by 2% in November compared to a year earlier. It is still a lot less than what actually happened in sales.

In 2022, buyers will have less purchasing power than they do now, which could lead to them being unable or unwilling to buy the items on offer. Builders could lower or limit the price of their homes, which would lead to a decrease in sales. Although a true correction is unlikely right now, historical data shows that prices typically lag sales by six months. Sales are also falling.