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New-home sales ended the year on a strong note as more home buyers flooded the market faced after finding fewer and fewer choices in existing homes for sale. Sales of newly built single-family homes jumped about 12% in December 2021 compared to November, the Commerce Department reported Wednesday.
“Though builders continue to grapple with higher construction costs, the December data reveal ongoing demand for new construction, given lean inventories of resale homes,” says Chuck Fowke, chairman of the National Association of Home Builders.
Higher construction costs have been pushing on new-home costs. The median sales price of a new home was $377,700 in December 2021, which was up from a $365,300 median the year before. Builders pointed to higher development costs for materials as the reason why.
Still, new-home buyers seem undeterred by the rising prices.
“The double-digit sales gain in December was likely due to motivated buyers who were seeking to sign sales contracts before interest rates move higher at the start of 2022,” says Robert Dietz, chief economist of the National Association of Home Builders. “Higher interest rates this year will price out some buyers from the market, but the existing home inventory shortfall remains.”
In the existing-home market, housing inventory levels dropped to an all-time low in December, leaving home shoppers with even fewer choices. Total housing inventory at the end of December 2021 was down 14% from a year ago, according to data from the National Association of REALTORS®.
But builders say they’re struggling to keep up with high demand in new homes due to ongoing supply challenges. Single-family construction dropped 2.3% in December compared to November.
The price and availability of building materials, and the supply chain in general, remains the most pressing, immediate challenge for builders as they seek to add housing supply,” Fowke said earlier this month in response to December’s housing starts data.