New home sales dropped sharply in July. High prices and dramatically higher mortgage rates have taken their toll on the new construction housing market. The median sales price of new houses sold in July 2022 came in at $439,400. The average sales price was $546,800. That rebound in prices was exactly what the new home market didn’t need. New home affordability has been crushed with higher mortgage rates.

“Sales of new single‐family houses in July 2022 were at a seasonally adjusted annual rate of 511,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.6 percent below the revised June rate of 585,000 and is 29.6 percent below the July 2021 estimate of 726,000.”

In the span of just 6 months we’ve gone from virtually no new homes available for sale to 7.3 months of new homes under construction. New home inventory continues to grow in both absolute numbers and in visibility. We should see a big increase in completed inventory over the next several months. That is going to put pressure on new home prices. Unadjusted figures show a record 105 thousand new homes which have not been started. That’s more than double the normal level.

If you look at all of the developed lots across North Texas it makes perfect sense. Builders will have to pick their poison in the current backdrop. They can either bring down those inflated prices, or watch sales whither on the vine. There are no good choices when reckless central bank and government policies have created such a huge mess in the housing market.

Luxury home builder Toll Brothers released third quarter earnings this week, confirming the new home slowdown. Toll Brothers lowered their forward guidance for the year. Toll saw net contracts plummet 60 percent from last year. Contracts per community fell 62 percent. Toll’s cancellation spiked over 300 percent, rising from 3.1 percent of net contracts last year to 13.0 percent. That’s a pretty big deal when you consider the average price for one of a Toll home is over $900,000. We’re talking about buyers that walked away from some rather large cash deposits. It’s not uncommon to see deposits of 5 to 10 percent for these homes.

NTREIS data show that new construction prices have already started falling in North Texas. Both median and average new home prices posted a sizeable drop in July from the peak in June. That’s largely a result of so many new homes finally coming out of extended backlog. New construction inventory in the DFW metro area jumped 119 percent year-over-year in July, rising to 4.6 months of supply.

Judging from the builder incentive offers that keep piling up in my inbox, prices for new homes should continue to improve as we head toward the end of the year.