After dropping 4.5% month-over-month in January, new home sales were down again in February, decreasing 2.0% from the month prior to a seasonally adjusted rate of 772,000, according to data released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau on Wednesday.
Year-over-year, new home sales were down 6.2% in February.
“Though February’s new sales were below recent highs, builders are still selling homes at a higher seasonally adjusted rate than they did at any point between 2008 and 2019,” Zillow economist data analyst Dan Handy said in a statement. “This transaction volume is taking place against a backdrop of continuous supply chain and labor disruptions.”
At the end of February, an estimated 407,000 new homes were still for sale, which at the current sales rate represents a 6.3 months supply. This is an increase of 3.3% from a month prior and a 40% increase from the February 2021 level.
“Buyers are facing a housing market that looks to be as competitive as ever,” Handy said in a statement. “Inventory is at a record low and homes are selling within a week of being listed – more than two weeks faster than they did in February 2020.”
While single family housing starts hit its highest level since 2006 in February, homebuilder sentiment dropped below the 80-point mark or the first time since September 2021 according to the National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI) report. Experts say that continued supply chain issues, labor shortages, rising material costs and rising interest rates are to blame.
“As mortgage rates rise, all else held equal, house-buying power falls,” First American deputy chief economist Odeta Kushi said in a statement. “Homebuilder confidence fell in March as builders continue to face supply chain disruptions, price increases, and concerns that declining affordability will price out buyers.”
Although home prices continue to rise across the nation, the median sales price of a new home in February was $400,600, down from $423,300 in January.
“Compounding the challenges that buyers are facing in this historically competitive market is the fact that monthly mortgage payments are rising at their fastest pace in decades, as home values and mortgage rates have each experienced sharp increases to begin the year,” Handy said in a statement.
Regionally, new home sales increased month over month in the Northeast (59.3%) and the Midwest (6.3%), but fell in the South (-1.7%) and the West (-13.0%). Year over year, all regions saw decreases in new home sales, except for the Northeast which recorded a 7.5% increase.
The market crunch affects borrowers with less money more acutely, economists said.
“Affordability is a growing challenge as higher new-home prices and rising rates may be pricing out some buyers,” Kushi said. “One year ago, 31% of new home sales were priced below $300,000. In February 2022, only 18% of new home sales were priced below $300,000.”
Doug Duncan, the chief economist at Fannie Mae, said the increase in the number of homes for sale in February could be sign of larger trends worth following.
“However, the increase was due almost entirely to homes that have not been started, which reached a record high of 106,000 units,” he said. “This points to potential for more homes being built later in the year, but the number of homes sold that are under construction fell 9.1% after a 10.4% drop in January. This suggests some slowing of demand, which should soften further if mortgage rates continue to rise. Even if rising mortgage rates stabilize, affordability constraints are now at a level that is likely increasingly weighing on sales, while further increases in financing costs for homebuilders may also modestly limit the conversion of new lots into completed units.”