New home sales decreased significantly in January, falling from 2017’s decade-high pace, according to the latest report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
Sales of new, single-family homes decreased to a seasonally adjusted annual rate of 593,000 in January. This is down 7.8% from December’s rate of 643,000 and down 1% from January 2017’s estimate of 599,000.
“After the drop in existing home sales last month, additional weakness in new home sales is not what the market wanted or needed to see as we begin thinking about the spring home shopping season,” Zillow Senior Economist Aaron Terrazas said. “New home sales data in particular has proven to be fairly volatile, so it's possible some of this initially reported weakness may be revised in coming months.”
“It's also possible bad weather kept some buyers away earlier in the month,” Terrazas said. “And if we're stretching to find a silver lining, very modest gains in the West means activity didn't fall where it is arguably needed the most. Still, this report is undoubtedly disappointing.”
Back in December, new home sales decreased significantly from November, but stayed high enough to finish out the year with the highest pace of annual new home sales since 2007.
One expert, who served as Fannie Mae’s chief economist for more than 20 years, explained this decrease came as a shock to the housing industry as most analysts were expecting an increase.
“Most analysts had expected an increase in sales based on both rising mortgage purchase applications from the MBA’s weekly survey and little change in current sales at nearly the highest levels since 1999 from NAHB’s monthly housing market index survey,” Nationwide Chief Economist David Berson said.
Meanwhile, the median sales price of new homes sold decreased in January to $323,000, down from $335,400 in December. The average sales price came in at $382,700 for the month.
“Though both new home sales and prices dipped for the second month in a row, these lower prices don’t negate earlier price gains that have put new homes out of reach for the majority of buyers,” realtor.com Senior Economist Joseph Kirchner said. “This is disappointing given the importance of new construction in powering overall home sales.”
“Today's report provides further evidence that builders are slowly shifting toward more moderately priced homes,” Kirchner said. “The drop in sales may be due to saturation in the upper price range of the market, which should compel builders to follow the market and build more moderately priced homes.”
The seasonally adjusted estimate of new homes for sale at the end of January was 301,000, up from 295,000 in December. The months of supply at the current sales rate also increased, rising from 5.7 months in December to 6.1 months in January.
But despite January’s low numbers, one expert still remains confident in the role of new home sales in the housing market going into 2018.
“With inventory levels at nine-year highs, and demand supported by rising household incomes, new homes sales are set for a decent 2018,” Capital Economics Property Economist Matthew Pointon said.