The market for new home sales is finally cooling off. The Census Bureau reported new home sales for March at 735,000 units (SAAR). This was 8.6% below the revised February estimate. It was also a 12.6% drop from March of last year. The median sales price of a new home contracted in March 2022 was $436,700. The average sales price was $523,900. Those were both new record highs. The unadjusted inventory of new homes stood at 5.7 months, up from 5.3 in February.

Sky high prices and rising interest rates are now acting to cool demand for new construction. This is not exactly surprising. It’s worth noting that the average contract interest rate in March was still below 4.5%. With rates solidly above a five handle, affordability has been crushed. New home sales should continue to cool with rates above 5 percent.

That’s a good thing if you are a potential buyer. Most builders are still working off of long customer waiting lists. Many of the smaller new home developments are essentially sold out before they can even put a model up. Builders are still voluntarily throttling construction to keep pace with their access to materials. HVAC equipment, cabinets, windows and doors, garage doors and millwork are some of the problem areas according to recent surveys. Framing and lumber availability have generally improved.

The price of a new home in North Texas has never been more expensive. The median price was up 22.7 percent to $405,000. Average prices rose 15.5 percent to $467,162.  New home inflation is even worse if you are looking at the prices per square foot. Sales activity has taken a hit as a result. NTREIS data for new construction shows sales fell 21 percent from last year. I’ll take the under on that one since many new construction contracts aren’t making it into the MLS in this market.

33 percent of the new homes sold during March had not even started construction (24,000 of the 72,000 total NSA). Only 17,000 (23 percent) were completed new homes. Of the 406,000 new homes available for sale at the end of the period, 110,000 (27 percent) had not started construction. Going forward the percentages and totals for completed new homes should begin to rise toward more historical trend. It will be interesting to see how long it takes for builders to work through their waiting lists.

Arlington-based D.R. Horton reported second quarter earnings this week, posting $8 billion in revenue and $1.4 billion in profit for the latest three month period. Horton apparently had so much cash on their hands they decided to spend $266 million buying back their own stock in the latest quarter. Share repurchases for the latest six months totaled $544 million. Nothing like the smell of financialization.

Net sales orders for the quarter slid 10 percent to 23,340 homes, but prices were way up. Company chairman Ronald Horton apparently isn’t too concerned about market conditions.

“Housing market conditions remain strong despite the rise in mortgage rates, as we continue to experience homebuyer demand that exceeds our pace of supply. We are still selling homes later in the construction cycle to better ensure the certainty of the home close date for our homebuyers, and we are continuing to work to stabilize and then reduce our construction cycle times to historical norms. With 33,900 homes in backlog, 59,800 homes in inventory, a robust lot supply and strong trade and supplier relationships, we are well-positioned to grow our consolidated revenues by more than 25% in fiscal 2022.

For the time being new home builders are still holding outsized leverage in the market. Demand for new homes is still robust and inventory is still very low by historical standards. The path to a more normalized market depends on how quickly the Fed works to correct their latest policy errors. Builders may not be worried about market conditions now, but that’s only because they still have little competition for customers. With inventory in the resale market now climbing the supply-demand equation will begin normalizing.