The Census Bureau reported new home sales for July at a seasonally adjusted annual rate of 708,000. That was a bit better than official estimates, but still down 27 percent from the same time a year ago. New home prices hit all-time highs in July. The median price of a new home contracted last month rose to $390,500. The average price of new construction hit a new record high of $446,000.

The seasonally‐adjusted estimate of new homes for sale at the end of July was 367,000. That figure is a bit misleading because a huge chunk of new home inventory is homes that have not even been started by builders. Recent data on starts and permits shows over 100 thousand homes which have not been started. That’s about double the normal level. The Census figure of 6.2 months of supply is currently providing a very misleading picture of new home inventory. NTREIS figures show that Denton County Texas has just 1.5 months of new construction inventory. There is only 1.8 months of new home supply in the DFW area.

Data from North Texas certainly doesn’t fit with the Census estimates in terms of inventory. Housing inventory has been running on fumes for most of the spring and summer in the Dallas-Fort Worth area. Resale inventory in the DFW area bottomed back in March. New construction inventory did not start picking up until May this year, and June was the first month we saw any real growth in new construction housing stock.

With FOMO gripping the local housing market this summer, prices hit record highs and the market became seriously overheated. Depleted inventory and inflated prices are are the primary reasons we’ve seen a slowdown in home sales the past two months. Existing home sales in North TX were down 9% in July. New home sales plunged 54% because affordable new home inventory practically vanished from the local market.

Another interesting development of the Covid housing mania is the vanishing new home premium. The premium for new construction was $100,000 (over 30%) just a few years ago in North Texas. With all home prices reaching nosebleed levels during Covid and severely depleted inventory, that premium has all but disappeared.

For buyers in Denton County and many parts of North Texas new homes are still an attractive option. The big question for the new home market is how many affordable new homes builders can produce in volume. Land and materials are expensive. Building affordable housing stock in this market environment is no easy task, not when the Federal Reserve is pushing for endless asset inflation and priming the monetary pump. New home sales seem to have stagnated recently even though mortgage interest rates were near record lows in July. The sales stagnation is perfectly understandable considering the prices.