Low mortgage rates and incredible buyer demand won out over pressure from soaring lumber prices in March as single-family new home sales rose 20.7% from February to a 1.02 million seasonally adjusted annual rate, according to the Department of Housing and Urban Development and the U.S. Census Bureau. This is the fastest sales pace since September 2006.
With so many buyers snatching up new homes at the ready, inventory fell to 3.6 months of supply, with just 307,000 new single-family homes for sale, 44.6% lower than March 2020.
“This is the best new home sales report in 10 years,” said Logan Mohtashami, HousingWire’s lead analyst. “We’ve essentially got a trifecta – so headline number is great, revised numbers are great, but monthly supply is below 4.3 months. These are all benefits of a very solid report. As long as mortgage rates stay low the builders are going to be fine.”
“Don’t forget, rates beat lumber in the paper, rock, scissors game,” Mohtashami said.
The median sales price of a new home sale in March was $330,800, up from the $328,200 median sales price posted a year earlier, when COVID-19 lockdowns began. Encouragingly, price increases were relatively muted in March, and more than a third (35%) of sales were in the $200,000-to-$299,000 price range — a sweet spot for younger buyers and/or those on more modest budgets, noted Zillow economist Matthew Speakman.
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Builder confidence rose one point to 83 for newly built single-family homes in April, according to the latest National Association of Home Builders and Wells Fargo Housing Market Index report, with higher lumber prices adding roughly $24,000 to the cost of a new home.
“There may come a point where these rising costs impact demand for new homes, but for now, home builders seem to have found their groove,” Speakman said.
Regionally, on a year-to-date basis, new home sales declined 3.3% in the West, and rose in the other three regions, up 36.6% in the Northeast, 53.9% in the Midwest and 50.5% in the South.
Several economists noted that March may have been a better reflection for new home sales as February homeowners grappled with inclement weather that pushed them indoors, while March’s temperate environment kicked off Spring buying season with a bang.
David Berson, Nationwide’s chief economist, said he is expecting that new home sales will continue to climb to levels not seen since 2006, despite expectations of modest mortgage rate increases. According to Berson, a boom in job growth should more than offset the impact from rising rates. And if more existing homes are not put on the market for sale this year (mostly from COVID concerns), then new home sales could be even stronger and rise to the highest level since 2005.
The factors that have fueled the recent strength in the market for new homes are holding fast – mortgage rates remain historically low, the supply of existing homes available for sale continues to fall short of demand and a wave of young adults are eagerly seeking ways to enter the market, Speakman said.
“Builders have clearly taken note, upping their activity in recent months and expressing more confidence that the wave of home shoppers will continue to swell going forward,” said Zillow economist Matthew Speakman.